Beverage bonanza: Dr Pepper Snapple merging with Keurig Green Mountain

It's a caffeine lover's dream: Dr Pepper Snapple is merging with Keurig.The new company will be called Keurig ...

Posted: Jan 29, 2018 6:42 PM
Updated: Jan 29, 2018 6:42 PM

It's a caffeine lover's dream: Dr Pepper Snapple is merging with Keurig.

The new company will be called Keurig Dr Pepper. It will combine Dr Pepper, 7UP, Snapple, A&W and Sunkist with Keurig's franchise of single-serve coffee pods, which includes the Green Mountain Coffee Roasters and The Original Donut Shop brands.

It's the latest big merger in the food and beverage industry. Companies are grappling with the likelihood that prices could be pushed lower as a result of the increased dominance of Walmart and Amazon in the supermarket business.

News of the deal sent shares of Dr Pepper Snapple surging more than 25% on Monday.

Dr Pepper also recently bought Bai Brands, which produces antioxidant drinks, for $1.7 billion. (You may remember last year's quirky Super Bowl ad for Bai featuring Justin Timberlake watching Christopher Walken recite lyrics to the NSYNC hit "Bye Bye Bye.")

Keurig Green Mountain and its investors will own 87% of the combined company. Keurig was bought by German conglomerate JAB Holding in 2015. JAB also owns the coffee chains Peet's, Stumptown and Caribou as well as Krispy Kreme and Panera.

Dr Pepper Snapple will own the remaining 13% of Keurig Dr Pepper. JAB will invest $9 billion in Dr Pepper Snapple. Dr Pepper Snapple stockholders will receive $103.75 in cash for each share they own.

The companies said the combined Keurig Dr Pepper would have had about $11 billion in revenue last year. To put that in perspective, analysts estimate Pepsi and Coke generated $63.4 billion and $35.2 billion in sales respectively last year.

Companies have been pairing up to cut costs and better position themselves for a tougher pricing world. The grocery business is increasingly dominated by Walmart and Amazon, especially after Amazon bought Whole Foods.

Related: JAB's Panera is buying back Au Bon Pain

Both Walmart and Amazon aim to keep prices low, which squeezes the profit margins of big food companies. One way to combat that is to get bigger.

Hershey agreed to buy Amplify Snack Brands, the maker of SkinnyPop popcorn, for $1.6 billion last month. Campbell Soup agreed to purchase the pretzel maker Snyder's-Lance for $4.9 billion in December.

But another food giant, Oreo and Cadbury owner Mondelez will be a big winner from the Dr Pepper Snapple deal.

Mondelez agreed to merge its coffee business with JAB's popular European coffee brands, such as Senseo and Douwe Egberts, in 2014 and subsequently acquired a stake in Keurig once JAB bought it a year later. As a result, Mondelez will have a 13% to 14% stake in the combined Keurig Dr Pepper.

And it looks like another well-known food and drink company, Dunkin' Brands, could be a loser as a result of the merger.

Shares of Dunkin' fell 2% in early trading Monday. Analysts speculated last year that JAB might want to buy Dunkin'. That deal seems less likely now.

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