Keurig Dr Pepper Acquires JDE Peet's in US$18bn Purchase

Keurig Dr Pepper (KDP) and JDE Peet's have announced an agreement of KDP's acquisition of JDE Peet's. 

Through KDP's single-serve coffee machines and JDE Peet's portfolio of coffee brands, this acquisition is expected to create a leading name in coffee sales.

Once the acquisition has closed, KDP has plans to separate the company into two, creating its own coffee branch. 

Acquisition plans

KDP has agreed to buy JDE Peet's for €15.7bn (£13.6bn/US$18.4bn) in a significant acquisition deal. 

KDP is a North American beverage company with a portfolio of more than 125 brands, including Dr Pepper, Snapple, Schweppes, Kuerig, McCafé and Cinnabon.

JDE Peet's is a Dutch beverage company owning 50 brands, most of which are tea, coffee and hot chocolate, including Peet's Coffee, L'Or Espresso, Kenco and Super. 

Once the acquisition has closed, there are already plans to separate the brands into two: a North American refreshment beverage company called Beverage Co, and a pure-play coffee company called Global Coffee Co.

The aim is to create the world's number one coffee company, with the blending of the portfolios helping to diversify its supply chain.

Tim Cofer, the CEO of Keurig Dr Pepper, will be the CEO of Beverage Co., while Sudhanshu Priyadarshi, the CFO and President of Keurig Dr Pepper, will become the CEO of Global Coffee Co.

"We also shared our plans to ultimately create two distinct, publicly traded companies by separating our coffee and refreshment beverage businesses. By combining our own leading, single-serve business with JDE Peet's, we will create a global coffee powerhouse serving 100+ countries," says Tim.

"In refreshment beverages, we will create the most agile, scaled player in North America with multiple ways to continue to grow and win.

"We’re creating two winning companies powered by our amazing top beverage talent. It is the incredible work and challenger mindset of our team that made this moment possible."

Two leading companies

Thanks to JDE Peet's already strong coffee portfolio, KPD will grow a strong global portfolio. 

Global Coffee Co., which is currently showing an approximate combined annual net sales of US$16bn, is set to be the largest global pure-play coffee company.

At present, brands within this company hold the top two market position in coffee sales in 40 countries, and have a presence in more than 100 countries around the world. 

Beverage Co. brings in more than US$11bn in net sales annually. With its large portfolio and expanding Direct-Store-Delivery system, it is sure to grow within the industry. 

Tim adds: “Through the complementary combination of Keurig and JDE Peet’s, we are seizing an exceptional opportunity to create a global coffee giant.

"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.

"By creating two sharply focused beverage companies with attractive and tailored growth propositions and capital allocation strategies, we are poised to generate significant shareholder value in both the near and long term.”

KDP's reach will only grow throughout this merger, with Kepler Cheuvreux analyst, Jon Cox, adding: "Rolling the two coffee businesses together makes sense, reducing the European-centric and commoditised nature of most of JDE Peet’s business and giving Keurig international exposure."

Initial reactions

The acquisition and announcement of future plans comes amid high prices for coffee around the world as a result of several geopolitical factors.

Due to weather issues causing droughts in Brazil and Vietnam, the top coffee producers, there has been lower yields in recent years.

Moreover, US President Donald Trump's 50% tariff on Brazilian goods has raised the price of coffee bean imports.

The rising cost of coffee production has, in turn, created higher costs for consumers.

KDP executives have already said they expect "subdued" growth in its coffee brands this year due to those factors, which suggests the leap to create a coffee company is an uncertain one within the current climate.

Shares in KDP sank more than 7% after the deal was announced, but some experts have shared their optimism about the move. 

"The new Coffee entity will be somewhat similar in size to the coffee business of Nestle," ING analyst Maxime Stranart says.

"The two would each have a market share of around 20% in the global CPG (consumer packaged goods) coffee market."

Despite the uncertainty, JDE Peet's and Keurig are looking ahead with excitement for the brands.

“We are excited to join forces with Keurig to chart the future of global coffee by leveraging our combined portfolio of the world’s most beloved coffee brands,” says Rafa Oliveira, CEO of JDE Peet’s.

“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.

"We are incredibly proud of the formidable global platform that we have built at JDE Peet’s and, together with Keurig, we are looking forward to powering a new era of coffee innovation and leadership, building on JDE Peet’s recently announced ‘Reignite the Amazing’ strategy.”

The merger and subsequent seperation may see some early issues, but Global Coffee Co. will have a global reach, a significant portfolio with a global manufacturing of more than 40 facilities and a reliable growth model.

Similarly, Beverage Co. will be host to some of the biggest names in carbonated soft drinks, with continuous expansion opportunities.

Whatever difficulties the companies may face when beginning their split, are sure to be quickly resolved as these companies take over the beverage market.