In a further consolidation of the beverage industry, the Vermont company that makes Keurig coffee machines said Monday that it would buy Dr Pepper Snapple Group, creating a beverage giant with about $11 billion in annual sales.
The companies, both the result of previous mergers, will bring under one tent Dr Pepper, 7UP, Snapple, A&W, Mott's, Sunkist, Nantucket Nectars, Bai, Canada Dry, and Keurig’s single-serve coffee makers.
The goal of the complicated deal, valued at $18.7 billion, is to provide customers hot and cold beverage options throughout the day, company executives said, with an emphasis on delivering an “afternoon energy boost.”
The merger would make use of the two companies’ distribution channels to expand their overall reach. Keurig Green Mountain has strong reach through Amazon and office retailers such as Staples, while Texas-based Dr Pepper Snapple has more grab-and-go consumers at CVS and 7-11 stores.
The combined company, which would be known as Keurig Dr Pepper, will “attract new brands and beverage categories to our platform in a fast-changing industry landscape,” Larry Young, president and chief executive of Dr Pepper Snapple, said in a statement.
Each company will continue to operate out of its current locations, but Keurig Green Mountain’s chief executive, Bob Gamgort, who works in the company’s Burlington, Mass., office, will assume the top job at the combined company, should the merger be approved by shareholders. Young will join the board of directors.
Keurig Green Mountain was acquired by its parent company, JAB Holdings, in 2016. JAB has spent the past five years on an acquisition spree that has, until now, focused on coffee and breakfast brands.
A European company, it owns Krispy Kreme Doughnuts, Peet’s Coffee & Tea, and the recently merged Panera and Au Bon Pain casual restaurant chains. It also owns a majority stake in the retail coffee and roasting companies Intelligentsia Coffee & Tea and Stumptown Coffee Roasters, and it has been rumored to be interested in acquiring Canton-based Dunkin’ Donuts. Dunkin Brands Group’s stock was down 2.4 percent on Monday.
Dr Pepper Snapple shareholders would receive $103.75 per share in a special cash dividend and keep 13 percent of the combined company. Shares of Dr Pepper Snapple soared more than 39 percent Monday before the stock market’s opening bell. They closed the day at $117.07, up 22.4 percent.
JAB is privately held, though a percentage of the Dr Pepper company would remain publicly traded.
The combined company would still be vastly outsized by PepsiCo Inc. and Coca-Cola Co., which had sales in 2016 of $63 billion and $41 billion, respectively.
The Dr Pepper Snapple acquisition had not been anticipated by analysts, but several said they were not entirely surprised.
“JAB in the last few years has been on a beverage-purchasing binge; it kind of doesn’t surprise me now that they went for another beverage company,” said Darren Seifer, a food and beverage analyst at NPD Group. He said the companies’s portfolios complement each other and would allow the combined company to extend drink offerings to customers throughout the day.
The deal also gives the company an edge, he said, that could help efforts to secure restaurant contracts. PepsiCo bottles Starbucks Frappuccino drinks but does not own any coffee brands outright. And while Coca-Cola Co. owns the tea companies Fuze and Honest Tea and bottles Dunkin’ Donuts ready-to-drink beverages, it does not own a coffee business.
So if the combined company can convince restaurants to offer not just Pepsi or Coke, but also Keurig Dr Pepper products, particularly its coffee offerings, “it might be a way that consumers can get more choice,” he said, while giving restaurants a better deal.
The merger could also mean a “significant opportunity” to offer more bottled coffee drinks to consumers.
“Dr Pepper has not had a significant presence in ready-to-drink coffee,” said Gary Hemphill, managing director of research for the Beverage Marketing Corp. American consumption of bottled soft drinks has stalled over the past decade, but the US ready-to-drink coffee market has been growing by double digits annually since 2011, and Euromonitor International anticipated in 2016 that the market could reach nearly $3.6 billion by 2020.
Hemphill said it was too soon to say what the merger might mean for technological advancements from Keurig. Despite the company’s dominance in selling single-serve coffee makers, the brand failed to gain traction with its Keurig Kold soda-making machines, released in 2015. The machines were bulky, and with a price tag of $369.99 customers balked at paying more than $1 for each 8 oz drink. The company cut its losses and pulled the machines from store shelves within a year.
“Keurig Kold did not pan out well,” Hemphill said, “but in-home beverage consumption is huge, and Keurig is a leader in that area.”
Last year, Keurig Green Mountain announced a partnership with Anheuser-Busch that suggested the companies would create an “in-home alcohol drink system.” But little has been heard about the deal since then.
Hemphill said he’d be paying close attention to whether the cold-beverage technology might be put to use in other ways.
The deal is expected to close in the second quarter, with the company estimating total debt to be about $16.6 billion at that time.
Material from the Associated Press was used in this report. Janelle Nanos can be reached at firstname.lastname@example.org.