Dr Pepper cans. Credit: Simon D via Flickr.

Coffee company Keurig Green Mountain has signed a ‘definitive merge agreement’ with soft drinks conglomerate Dr Pepper Snapple. The new publicly traded company will be called Keurig Dr Pepper.

Keurig Green Mountain will hold 87% of shares, 13%-14% of which will be held by JAB Holdings which acquired Keurig in March 2016. Dr Pepper Snapple will hold the remaining 13% of shares, and as a result Dr Pepper shareholders will receive $103.75 per share in a cash dividend as agreed by the board of directors. JAB Holdings will be the controlling shareholder in Keurig Dr Pepper.

Following the deal, Keurig Dr Pepper will hold a portfolio of approximately 125 owned, licensed and partner brands currently owned by the two parties to the merger. These brands include Green Mountain Coffee Roasters, Lipton, Schweppes, Krispy Kreme Doughnuts, 7UP, Twinings of London and Sunkist soda.

Keurig Dr Pepper expect that this merger will give both Keurig and Dr Pepper more exposure to high-growth segments of the beverage industry, brand consolidation opportunities and enhanced household penetration for products. This will make the merged company the top three beverage distributor in the US as it will be able to reach consumers across more retail channels and points of consumption.

The announcement led to a rise in stock prices. According to the Financial Times, stock closed on Friday 26 January 2018 at $95.65 per share and the price increased by 42% in pre-market trading to $136.

Combined annual revenues of Keurig Dr Pepper will total $11 billion for 2017. It is targeting $600 million in synergies for 2021, net debt to be below 3.0x within two or three years with total net debt of approximately $16.6 billion and to maintain its investment grade rating. Dr Pepper expects to deliver a dividend of $0.58 per share for the first quarter of 2018 and for that to rise to $0.60 per share after the merger has been completed in the second quarter.

President and chief executive officer of Dr Pepper Snapple, Larry Young, said: “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.”

Chief executive officer of Keurig, Bob Gamgort, added: “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.”

Bart Becht, partner and chairman of JAB Holding Company and chairman of Keurig, said, “We are very excited about the prospect of Keurig Dr Pepper becoming a challenger in the beverage industry. Management’s proven operational and integration track record along with their commitment to innovation and potential future brand consolidation opportunities, while maintaining an investment grade rating, positions the company well for long-term success and material shareholder value creation.”

The leadership teams of each company will continue to run their respective businesses, but a specific management group has been created to look after the combined company. Bob Gormant, will be the chief executive officer of Keurig Dr Pepper, the current chief financial officer (CFO) of Keurig, Ozon Dokmecioglu will be CFO of Keurig Dr Pepper. Larry Young of Dr Pepper will be on the board of directors–the chairman will be Bart Brecht of JAB. JAB will hold four seats on the board of directors and Dr Pepper will have two.

The transaction will be completed once the deal has been approved by the Dr Pepper shareholders and the customary closing conditions have been met. It will be financed by a $9 billion equity investment by JAB Holding Company. The balance of financing will be provided by financing debt commitments from JP Morgan Chase Bank, Bank of America Merrill Lynch and Goldman Sachs and will be not be subject to any financial conditions.