Today's stock market
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Rising interest rates hurt utility stocks, with the Utilities Select SPDR ETF (NYSEMKT:XLU) falling 1.3%. Oil stocks dropped, too; the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) lost 1.9%.
Dr Pepper shareholders get refreshing news
Privately owned Keurig Green Mountain announced it is acquiring Dr Pepper Snapple in one of the biggest beverage deals in recent years, sending Dr Pepper stock soaring 22.4%. Shareholders of Dr Pepper Snapple will receive a special cash dividend of $103.75 and will retain shares in the new beverage company, Keurig Dr Pepper, which will combine brands such as 7UP, A&W, Mott's, and Sunkist with Green Mountain Coffee and the Keurig single-serve coffee machines.
After the transaction, Dr Pepper shareholders will own 13% of the publicly traded company, while the other 87% will be owned by current Keurig shareholders, principally European investment firm JAB Holdings, which took Keurig Green Mountain private in 2016 and will be contributing $9 billion in equity as part of this deal. Snack food and beverage company Mondelez International, JAB's partner in Keurig, will own 13% to 14% of Keurig Dr Pepper. The combined beverage company expects to deliver $600 million in annual cost savings by 2021 and pay an annual dividend of $0.60 per share.
The combination will create a beverage company with about $11 billion in annual revenue, bringing together hot and cold beverages. Keurig Dr Pepper will get savings from the combined distribution system, and could get new partnerships with JAB brands, which now include Peet's Coffee and Tea, Caribou Coffee, Jacobs Douwe Egberts, Espresso House, Krispy Kreme, and Panera Bread.
WestRock boxes up rival KapStone
Containerboard manufacturing company WestRock announced it was acquiring smaller competitor KapStone Paper and Packaging in a $4.9 billion deal, and KapStone shares soared 30.8%. WestRock also released fiscal first-quarter results that missed on the top line but beat profit estimates. Sales increased 13% to $3.89 billion and adjusted earnings per share were $0.87. Wall Street was expecting the company to earn $0.77 on sales of $3.93 billion. Westrock shares slumped 2.7%.
WestRock will buy KapStone for $35 per share, which is a 32% premium to yesterday's closing price, and KapStone shareholders will have the option of taking cash or trading their shares for 0.4981 shares of WestRock. WestRock will also be assuming $1.36 billion in net debt, and will finance the transaction through issuance of new debt. WestRock expects the purchase to be immediately accretive to adjusted earnings and cash flow.
"KapStone is a great fit with WestRock," said WestRock CEO Steve Voorhees in the press release. "Their complementary corrugated packaging and distribution operations will enhance WestRock's ability to serve customers across our system, particularly in the western United States, and the addition of their specialty kraft paper products that we do not make enhances our differentiated portfolio of paper and packaging solutions."
WestRock expects cost synergies of $200 million, a better geographic profile, and an increase in the mix of virgin fiber as a result of the deal. Both companies are benefiting from higher box demand due to e-commerce. KapStone investors were turning cartwheels today, but those of WestRock seemed unsure of the price, despite the clear long-term advantages for the business.