Dr Pepper Issues Updates On Keurig Merger & Special Dividend (revised)

Dr Pepper Snapple Group, Inc. (NYSE:DPS) unveiled plans to pay special dividend of $103.75 per share, setting a conditional record date on Jul 6, 2018. This is with respect to the Agreement and Plan of Merger among Dr Pepper Snapple and Maple Parent Holdings Corp, the indirect parent of Keurig Green Mountain, Inc. Closure of this merger transaction depends on stockholder approvals after Annual Meeting on Jun 29 as well as other regulatory closing conditions. However, the closing is slated for Jul 9, 2018.

Per the terms of the merger, Maple Parent is expected to merge with a special purpose merger subsidiary of Dr Pepper Snapple. As a result, it will become a wholly-owned subsidiary of the company. On completion of the merger, Dr Pepper Snapple will be renamed as Keurig Dr Pepper Inc. and will trade under the symbol "KDP" on the New York Stock Exchange.

This merger announcement dates back to January 2018, when the leading coffee maker, Keurig Green Mountain, Inc., agreed to buy Dr Pepper Snapple. Under the terms of the deal, which was then approved by Dr Pepper Snapple’s board of directors, the company’s shareholders will receive a special cash dividend of $103.75 per share, making the deal worth $18.7 billion. Dr Pepper Snapple’s shareholders were likely to retain 13% ownership of the combined entity, while Keurig shareholders were about to own the remaining 87%.

Previously, it was revealed that European investment fund JAB Holding will make a $9 billion equity investment to finance the transaction. Also, Mondelez International, Inc. (NASDAQ:MDLZ) , JAB Holding's partner in Keurig, was about to have 13-14% stake in the merged entity.

The combined company, Keurig Dr Pepper, will have $11 billion in combined pro forma revenues and will realize $600 million in synergies on an annualized basis by 2021. The merger creates a portfolio that will contain a number of iconic brands, including Dr Pepper, 7UP, Snapple, A&W, Mott’s, Canada Dry and Clamato, among others. The merged entity is likely to gain from Dr Pepper Snapple's distribution network, while Keurig's online presence will boost sales through digital platforms like Amazon.com, Inc. (NASDAQ:AMZN) . In fact, analysts are of opinion that the combined company can give a tough competition to beverage giants, including The Coca-Cola Company (NYSE:KO) .

We note that Dr Pepper Snapple has been witnessing weak volumes of carbonated beverages, including the diet versions, owing to CSD category headwinds. Further, cross-category competition, and growing health and wellness consciousness among consumers are hurting CSD category growth. Moreover, new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales. In the past month, the stock lost 0.1% against the industry’s 5.4% rally.

So, it remains to be seen whether this merger transaction can really prove to be meaningful.

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(We are reissuing this article to correct a mistake. The original article, issued Wednesday, June 27, 2018, should no longer be relied upon.)

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