Keurig Dr Pepper has agreed to pay $18 billion to buy coffee brand JDE Peet’s in a transformational deal that will split the firm into two US-listed companies.
It will essentially unwind the 2018 merger that put Keurig, known for its coffee brewers and K-Cups, and soda titan Dr Pepper under the same roof – today valued at around $50 billion.
“This is a bold move,” Keurig Dr Pepper CEO Tim Cofer told the Wall Street Journal.
“But we’ve got a lot of confidence in this transaction.”
Keurig Dr Pepper said it would pay JDE Peet’s shareholders 31.85 euro, or about $37, a share in cash, a 33% premium compared to the average price over the last three months.
The agreement will split JDE Peet’s, an Amsterdam-based company with a $15 billion market value, into a separate company with Keurig and Green Mountain coffee that would have about $16 billion in annual revenue.
Beverage brands like Dr Pepper, 7UP, Snapple and energy drinks Bloom and Ghost will be spun off into the other company, which would boast about $11 billion in annual revenue.
Cofer will take the helm of the beverage business while Keurig Dr Pepper’s chief financial officer, Sudhansu Priyadarshi, will lead the coffee conglomerate.
“This is the right time for this transaction, with KDP in a position of operational and financial strength, momentum across our evolved portfolio and increasing coffee category resilience,” Cofer said in a statement.
Keurig Dr Pepper said last quarter that its US beverage sales grew by nearly 11% from the year before to $2.7 billion.
It has expanded its market share by releasing new flavors for its soft drinks, like Dr Pepper Blackberry, the company said.
And the deal was done at an attractive valuation for JDE Peet’s, which is expected to deliver about $400 million in cost savings, Cofer added.
Keurig Dr Pepper’s coffee business, however, has had a rough few quarters, struggling amid tough competition and higher costs.
Prices surged for coffee beans as a drought decimated crops in Brazil, the largest coffee producer – growing more beans than the next five leading producers combined.
While rainfall has returned to the region, Brazil is now facing a 50% tariff, which will be difficult for coffee companies to swallow.
That impact will become “prominent” in the second half of the year, and the coffee business will likely be further subdued as consumers pull back on spending due to economic anxiety, Cofer said last month.
But Keurig Dr Pepper’s coffee segment reported some improvement last quarter, after hiking prices twice already this year.
The deal is also expected to expand the coffee company’s geographical reach, as Keurig is mainly in North America while JDE Peet’s covers Europe, Latin America and the Middle East.
“This highly complementary transaction will deliver an attractive premium for our shareholders and will create compelling future growth opportunities for our employees, customers and other stakeholders,” JDE Peet’s CEO Rafa Oliveira said in a statement.
Keurig Dr Pepper and JDE Peet’s already share common ownership.
European investment firm JAB Holding controls nearly 70% of the voting power at JDE Peet’s, and owns about 4% of Keurig Dr Pepper. The investment firm originally pushed for the Keurig and Dr Pepper merger years ago.
JDE Peet’s, which JAB took public in 2020, has seen its shares slump, trading below the company’s IPO price even after soaring 16% on Monday.
