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Yesterday FoodBev reported that Keurig Green Mountain will acquire Dr Pepper Snapple in a move that will create a giant soft drinks and coffee conglomerate.
But just how big is the combined entity – to be named Keurig Dr Pepper – going to be? FoodBev takes a look at five of the key facts that show the scale, and the potential implications, of this important deal.
The biggest deal in 12 months
Keurig said it would pay $103.75 per share in Dr Pepper Snapple, and, with around 180.54 million outstanding shares, that makes a total cash consideration of $18.73 billion. That alone makes it the largest acquisition within the food and beverage industry in the past 12 months – in fact, it’s the biggest deal since German chemical giant Bayer agreed to acquire US seeds company Monsanto in September 2016. The only deal to come close since last January is Reckitt Benckiser’s acquisition of infant nutrition company Mead Johnson, and assuming the rumoured $30-billion deal between Archer Daniels Midland (ADM) and Bunge holds off until February, it will continue to be the largest F&B acquisition of the past 12 months. In reality, the true value of the acquisition is likely to be much higher, especially given that Dr Pepper Snapple shareholders will retain 13% of the combined company. Estimates say the deal could be worth as much as $25-27 billion.
$11 billion in revenue
The two companies said yesterday that a combined entity would have revenue of $11 billion, with $5.2 billion coming from Dr Pepper Snapple and the remainder being accounted for by Keurig Green Mountain. Before it was bought out in 2016 by JAB Holdings, which also owns Jacobs Douwe Egberts and Krispy Kreme, Keurig Green Mountain had annual sales of $4.5 billion. Since the acquisition, the company has realised significant growth in a number of key areas including coffee pods.
To put that $11 billion in context, FoodBev’s annual Top 100 of food and beverage companies (published October 2017) shows that Keurig Dr Pepper would have been around the 30th biggest company in 2016 and around the ninth biggest beverage group. That figure includes alcohol companies like Diageo and Heineken, as well as soft drinks rivals Pepsi and Coke. In fact, in 2016, Keurig Dr Pepper would have been similar in size to confectionery giant Ferrero – although since October, the Italian company has continued to build on its presence in North America with major moves for Ferrara Candy and Nestlé’s US confectionery arm.
$600 million in savings
Keurig and Dr Pepper said the combination would create “compelling value for shareholders”, including anticipated synergies of $600 million by 2021. But the real value will lie in the scale that essentially doubling the size and reach of both companies will bring. JAB Holdings, together with its partners, will make an equity investment of $9 billion as part of the financing of the transaction. Bart Becht, partner in JAB Holdings, said: “[JAB] Management’s proven operational and integration track record along with their commitment to innovation and potential future brand consolidation opportunities, while maintaining an investment grade rating, positions the company well for long-term success and material shareholder value creation.”
And Dirk van de Put, CEO of Mondelēz, which will own around 13-14% in the combined company as a result of its investment in Keurig, added: “We have been very pleased with our coffee partnership with Keurig, and strongly support the strategic rationale for this transaction. We look forward to continuing to participate in the compelling value-creation and long-term growth opportunities inherent in this powerful beverage platform.”
A roster of leading brands
The deal will bring together some of the soft drinks industry’s biggest brands, including – obviously – Keurig, Green Mountain, Dr Pepper and Snapple. DPS also owns labels like 7UP, A&W, Mott’s and Sunkist. JAB is hedging its bets on the carbonated soft drinks industry at a time of immense uncertainty, not least because of consumer concern around the amount of sugar in fizzy drinks. Globally, carbonated soft drinks are projected to grow by a small percentage in the coming years, but the increasing likelihood of sugar legislation and falling consumption in some developed markets weakens the business case for investing in soda. Admittedly, Dr Pepper Snapple already partnered with Keurig to make many of its leading brands available in K-Cup format, and the group is also an investor in rapidly growing beverage brands like antioxidant-infused Bai Brands.
The merger will have untold impact on the soft drinks industry and, culturally at least, is comparable with Kraft Heinz: two adjacent companies merging to create a significant player, with a new name. Bernstein analyst Ali Dibadj told Reuters that the acquisition also increases the likelihood of Coca-Cola or PepsiCo being bought out – one of the never-ending murmurs that exist within investor circles. “The likelihood that Coke and Pepsi will get bought has just gone up,” Dibadj said, although either deal would eclipse that of Keurig Dr Pepper as the world’s two largest soft drink companies have a combined market value of around $370 billion. And according to Reuters, analysts are also predicting more activity from Keurig Dr Pepper as it “pays down a debt load expected to be about $16.6 billion when the deal closes”.
© FoodBev Media Ltd 2018
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