More caffeine, please: Keurig is buying Dr Pepper Snapple

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. (Shutterstock)

NEW YORK—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 combination lets the company offer “hot and cold beverages to satisfy every consumer throughout the day,” said Larry Young, chief executive of Dr Pepper Snapple.

Keurig Dr Pepper, the name of the new company, plans to expand its bottled iced coffee offerings that are sold at supermarkets and convenience stores. And the combined company will tap into each other’s distribution network, bringing the brands to more stores and online retailers.

There’s also 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. Some Snapple flavours are already sold as Keurig pods.

The combined 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.

Shares of Dr Pepper Snapple Group Inc. soared 24 per cent to $118.75 on Monday.

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

JAB owns several other coffee brands, which Keurig Dr Pepper plans to tap into. 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 names.

Its pods, which are placed in the coffee makers and thrown out, have been criticized by environmental advocates as contributing to more waste. The company previously announced that it plans to make all its pods, which are called K-Cups, recyclable by 2020.

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

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.

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 more low calorie drinks and flavoured 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 per cent to 14 per cent.

Keurig and Dr Pepper Snapple said they expect $600 million in annual cost savings starting in 2021 by bringing together the two company’s warehouse and delivery network.

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.