Dr Pepper Snapple Group Inc. (NYSE: DPS) and Keurig Green Mountain Inc. announced on Monday a merger to create Keurig Dr Pepper (KDP), a new beverage company comprised of many popular consumer brands to reach different target audiences. Dr Pepper Snapple shares were up 25 percent on Monday.
The combined portfolio will combine companies such as Green Mountain Coffee, 7UP, Snapple Dr Pepper and Snapple into one.
Under the agreement, Dr Pepper Snapple shareholders will receive $103.75 per share in special cash dividend or a total of $18.7 billion and retain 13 percent of the combined company.
Keurig is owned by JAB Holding Company, which also owns other popular food chains such as Panera Bread and Krispy Kreme. With the addition of Dr Pepper Snapple, JAB will now have access to a whole different beverage industry compared to its current portfolio of multiple coffee companies.
KDP believes that the merger will lead to high growth in the long term while maintaining shareholder value. The two diverse beverage companies will offer many new innovations for the future.
The merger will also help Keurig get its coffee brands bottled and sold in convenience stores or even wholesale to giant retailers. It would ramp up its sales instead of being primarily known as an easy and quick home coffee maker.
Keurig plans to use Dr Pepper Snapple’s distribution to market its own drinks.
“This transaction will deliver significant and immediate value to our shareholders, along with the opportunity to participate in the long-term upside potential of our combined company and attract new brands and beverage categories to our platform in a fast-changing industry landscape.” said Larry Young, President and Chief Executive Officer of Dr Pepper Snapple.
“The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere.” said Bob Gamgort, Chief Executive Officer of Keurig.
KDP expects $600 million in cost savings by 2021. The company expects to deliver $11 billion in annual revenue. Dr Pepper Snapple expects to pay its first quarter dividend of $0.58 per share. At the close of transaction, the company expects to deliver an annual dividend of $0.60 per share.
KDP expects to have stronger cash flow generating through the merger. At the closing of the agreement, KDP expects to have a total net debt of $16.6 billion in the second quarter.
The transaction is expected to close in the second quarter of 2018.