Shares of Dr. Pepper Snapple Group (NYSE:KDP) were up 25% as of 1:30 p.m. EST Monday after the soft drink giant agreed to merge with Keurig Green Mountain, forming a new company called Keurig Dr. Pepper.
More specifically, Dr. Pepper Snapple Group investors will receive a special cash dividend of $103.75 for each DPS share they own -- representing a roughly 8.5% premium to its Friday closing price -- and will retain 13% of the combined company after the deal closes.
"This transaction will deliver significant and immediate value to our shareholders," added Dr. Pepper Snapple CEO Larry Young, "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."
To be sure, the combined companies will have generated pro forma 2017 revenue of roughly $11 billion driven by dozens of iconic beverage brands and coffee varieties. Keurig Dr. Pepper will also boast a massive distribution network capable of reaching "virtually every point-of-sale in North America."
The deal should close in the second quarter of 2018 -- assuming it receives the approvals of both regulators and Dr. Pepper Snapple shareholders -- after which the combined company will target realizing $600 million in annualized cost synergies by 2021. The combined company also expects to pay an annual dividend of $0.60 per share.
As it stands, there's little not to like about the scale, cost savings, and resulting competitive advantages this combination will bring. But with shares fully reflecting the agreed acquisition price (including the roughly 13% post-merger stake and the special dividend), and assuming holding longer won't result in more favorable long-term capital gains tax treatment, I certainly wouldn't blame Dr. Pepper Snapple shareholders for taking profits and putting them to work elsewhere.