More caffeine, please: Keurig is buying Dr Pepper Snapple

Author: Joseph Pisani / AP

Keurig is buying Dr Pepper Snapple Group, bringing together the make-at-home coffee brand with the company behind Dr Pepper soda, Mott’s apple juice and Snapple iced tea.

The new company, Keurig Dr Pepper, plans to expand its bottled iced coffee offerings that are sold at supermarkets and convenience stores. The private company that controls Keurig already owns coffee brands like Stumptown and Peet’s.

Keurig Dr Pepper will offer “hot and cold beverages to satisfy every consumer throughout the day,” said Larry Young, chief executive of Dr Pepper Snapple.

And the combined business will tap into each other’s distribution network, bringing their brands to more stores and online retailers. The companies said they’ll save $600 million a year starting in 2021 by combining their warehouse and delivery systems.

The new company will have about $11 billion in annual sales, which still makes it far smaller than soda makers PepsiCo Inc. and Coca-Cola Co., which had 2016 sales of $63 billion and $41 billion, respectively.

But Bernstein analyst Ali Dibadj said he expects more beverage companies to combine to save on distribution costs and get their products on the same delivery trucks.

“There will be more of these,” Dibadj said.

Some Snapple flavors are already sold as Keurig pods, but there’s a chance that more of Dr Pepper Snapple’s brands will be turned into pods that are placed into Keurig’s single-serve brewing machines to make drinks.

Keurig’s pods, which are thrown out after they are used, have been criticized by environmental advocates as contributing to more waste. The company previously announced plans to make all its pods, called K-Cups, recyclable by 2020.

Keurig Green Mountain Inc. became a privately held company in 2016 when it was acquired by Europe’s JAB Holding Co. in a partnership with snack company Mondelez International.

Keurig Dr Pepper plans to tap into JAB’s other coffee brands. It wants to expand bottled iced coffees under the Krispy Kreme, Stumptown and Peet’s names, all of which are owned by JAB. The holding company also owns the Panera Bread restaurant chain. And Keurig sells coffee pods under the Green Mountain and Donut Shop brands.

Keurig CEO Bob Gamgort, who will lead the new company, highlighted Dr Pepper Snapple’s Bai brand as “driving significant growth” during a conference call with investors.

Bai, which makes fruity, low-calorie drinks and bottled water, was bought by Dr Pepper Snapple last year to add low-calorie drinks and flavored sparkling waters into its portfolio as more people avoid sugary sodas.

JAB will be the controlling shareholder of the combined company. Mondelez will hold a stake of about 13 percent to 14 percent.

Keurig said Dr Pepper Snapple shareholders will receive $103.75 per share in a special cash dividend and keep 13 percent of the combined company. Dr Pepper Snapple shareholders still must approve the deal.

Shares of Dr Pepper Snapple Group Inc. soared 22 percent to $117.07 on Monday.

Keurig Dr Pepper will trade publicly after the deal closes, which is expected to happen in the second quarter. A new ticker symbol hasn’t been announced yet, the company said. Keurig will stay in its Waterbury, Vermont, headquarters, and Dr Pepper Snapple will remain in Plano, Texas.

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