The Stars Align For Dr Pepper Snapple and Keurig

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Dr Pepper Snapple Group Inc. (NYSE: DPS) saw its shares rise handily in Monday’s session after it announced that It would be merging with Keurig Green Mountain. The combined company will be called Keurig Dr Pepper, and it looks to have unrivaled distribution capability to reach virtually every point-of-sale in North America.

Under the terms of the agreement, which has been unanimously approved by the Dr Pepper Snapple board of directors, Dr Pepper Snapple shareholders will receive $103.75 per share in a special cash dividend and retain 13% of the combined company. Ultimately, the company is looking to have about $11 billion in annual sales.

At the same time, JAB Holding Company and its partners will together make an equity investment of $9 billion as part of the financing of the transaction.

When the transaction closes, JAB will be the controlling shareholder. Mondelēz International, JAB’s partner in Keurig, will hold roughly a 13% to 14% stake in the combined company.

Looking ahead, the combined company targets realizing $600 million in synergies on an annualized basis by 2021. Also, Dr Pepper Snapple expects to pay its first-quarter ordinary course dividend of $0.58 per share. At the close of the transaction, the company expects to deliver an annual dividend of $0.60 per share.

Larry Young, president and CEO of Dr Pepper Snapple, commented:

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. We are excited to combine with Keurig to build on the rich heritage and expertise of both companies and provide the highest-quality hot and cold beverages to satisfy every consumer throughout the day.

Excluding Monday’s move, this stock had underperformed the broad markets and was down about 1.5% year to date. Over the past 52 weeks, the stock is up only about 5%.

Shares of Dr Pepper Snapple traded up about 25% at $119.11 Monday afternoon, with a consensus analyst price target of $102.68 and a 52-week range of $81.70 to $126.63.