A deal worth over $21 billion has been struck by Keurig Green Mountain and Dr Pepper Snapple Group to create a drinks firm with well-known brands such as Sunkist, Snapple, 7UP and Green Mountain Coffee. This is the latest deal by JAB Holding Company, an Austrian investment firm, in a series of moves aimed at forming a breakfast and lunch empire.
Keurig Green Mountain was acquired by JAB two years ago and the investment firm also owns Caribou Coffee and Panera besides other coffee and breakfast concepts. The newest deal will see JAB become not just an acquirer but also a major drinks distributor in the United States. Bob Gamgort, the chief executive officer of Keurig, will head the new entity which will adopt the name Keuri Dr Pepper.
Drink distribution network
Unlike with previous acquisitions by JAB, Dr Pepper will remain a public company partially. Shareholders of Keurig will own an 87% stake in the new entity while a 13% stake will be in the hands of Dr Pepper’s shareholders. The public float will give Keurig easier access to funds to finance acquisitions in future.
The deal will also allow Keurig access to the drink distribution network of Dr Pepper which is one of the three major networks in the United States. In future Keurig will thus be able to use the distribution network to get its coffee as well as products to the market.
Additionally Keurig will also get access to the allied brands of Dr Pepper and this include healthy and upstart beverages such as Vita Coco and Fiji Water. Approximately $600 million is expected to be generated in cost savings. There will also be opportunities for expansion of the business by for instance making coffee available in bottles as well as in vending machines. Keurig’s relationships with major retailers will complement the direct-to-store delivery model of Dr Pepper.
At a time when there is a decline in the sales of soft drinks as a result of a reduction in sugar consumption by consumers, bulking up is being adopted as the best strategy for boosting efficiency. Following the merger between Keurig Green Mountain and Dr Pepple Snapple Group the new entity will become the third-largest seller of soft drinks in North America.
“If your truck is becoming less full because volumes are declining, you should have other beverages to fill that spot. The likelihood that Coke and Pepsi will get bought has just gone up,” Ali Dibadj, an analyst at Bernstein,said.