Commentary

Keurig Puts A Lot Of Fizz In Its Holdings, Buys Dr Pepper Snapple

Keurig Green Mountain will become the distant No. 3 player in the carbonated soft drink market with its $18.7 billion acquisition of Dr Pepper Snapple Group yesterday, but the deal is about a lot more than selling fizzy soda pop. The division of Luxembourg-headquartered JAB Holding will be known as Keurig Dr Pepper, a new, publicly traded beverage company.

They “are betting that they can create a beverage giant with an estimated $11 billion in revenue, and brands such as Keurig’s single-serve coffee pods, Dr Pepper, 7Up and Snapple,” writes Michael J. de la Merced for the New York Times. “The deal is the latest attempt to consolidate in the food and beverage industry, as companies focus on building size and scale.”

Hawaiian Punch, A&W, Mott’s and Sunkist — not to mention Yoo-Hoo and Clamato — are other familiar brands that will now be part of a blended family in “a marriage that combines popular brands that have struggled with increased competition and shifting consumer tastes,” as the Wall Street Journal’s Cara Lombardo and Zeke Turner put it, in what it “the biggest nonalcoholic drinks deal on record, according to Dealogic.” 

The new entity “will draw on the leadership teams of both companies, who will continue running their respective businesses,” according to the release announcing the deal. Keurig CEO Bob Gamgort will serve as the Burlington, Mass.-based CEO of the combined company; its CFO, Ozan Dokmecioglu, will be have the same role at the new company. Dr Pepper Snapple president and CEO Larry Young will “transition to a role” on KDP’s board. The companies will continue to operate from their current locations — Plano, Texas, for Dr Pepper Snapple; Waterbury, Vt., for Keurig Green Mountain. 

The deal enables Keurig “to shoehorn its way into two new markets at once. On one hand, it will challenge the market share held by Starbucks, which bottles and sells its drinks in retail outlets across the country” writes Chase Purdy for Quartz. “… On the other hand, Keurig is also now in direct competition with mammoth beverage companies Coca-Cola and PepsiCo, which have been looking for ways to bring more coffee and tea brands into their own folds as sugary sodas have slowly fallen out of consumer favor.”

Indeed, “Mr. Gamgort said in an interview that Keurig would use Dr Pepper’s distribution network to market drinks such as Peet’s Coffee and Forto coffee shots and use Keurig’s online presence to sell more Dr Pepper drinks through retailers such as Amazon.com Inc.,” the WSJ’s Lombardo and Turner report. “The deal would ramp up Keurig’s competition with Starbucks Corp., whose bottled drinks dominate the market and are distributed by PepsiCo Inc. Coca-Cola began distributing a line of Dunkin’ Donuts bottled iced coffee last year.”

Join the crowd.

“Analysts say the new firm … is far from alone in its quest to reinvent America’s favorite breakfast drink. Over the past two years, many of the country's largest coffee chains and beverage-makers have pushed aggressively into new product lines intended for consumption in the afternoon and evening. Several of those firms, such as Panera and Stumptown, are already owned by Keurig’s corporate parent, JAB Holdings,” writes Caitlin Dewey for the Washington Post.

“They seem to really want to branch out beyond breakfast,” CB Insights senior retail analyst Zoe Leavitt tells Dewey.

“JAB, which is backed by the billionaire Reimann family, has been placing increasingly bold bets on food and drink businesses. At the same time, it has shifted away from fashion holdings such as Jimmy Choo,” observe Bloomberg’s Lisa Wolfson, Eric Pfanner and Jennifer Kaplan. “The combined company would be able to cash in on consumer trends in which people are turning away from once-dominant colas, Bloomberg Intelligence analyst Ken Shea said. Although Dr Pepper Snapple has its roots in traditional soft drinks, it has added fast-growing upstart beverages such as Bai Brands.”

“It's a deal that makes a lot of strategic sense,” Shea tells the reporters. “Once it gets going and they can deliver on some of the bold things they're talking about here, this will be a really important benchmark that investors will use to compare Coke and Pepsi against.”

 Keurig Dr Pepper (“KDP”) will be traded on the New York Stock Exchange. 

“Having an element of the company that’s public while still having an anchored shareholder with incredibly long-term view I think is the optimal combination in today's environment,” Gamgort said during a conference call yesterday,” Kevin McCoy and Zlati Meyer report for USA Today.

An incredibly long-term view and an incredibly big bankroll.

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