Please ensure Javascript is enabled for purposes of website accessibility

Why Dr Pepper Snapple Group, Inc. Stock Soared in January

By Jeremy Bowman - Feb 5, 2018 at 2:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the beverage giant jumped after it said it would merge with Keurig. Here's what you need to know.

What happened

Shares of Dr Pepper Snapple Group, Inc. (DPS) jumped last month after the beverage giant announced a surprising merger with Keurig. As a result, the stock finished the month up 23%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, all of the gains came on Jan. 29 when the deal was announced.

DPS Chart

DPS data by YCharts.

So what

According to the agreement, Dr Pepper Snapple shareholders will receive $103.75 a share, and will retain a 13% stake in the new company, which will be called Keurig Dr Pepper and will be publicly traded. That arrangement valued Dr Pepper Snapple at a 25% premium above its closing price on Jan. 26.

The Dr Pepper Snapple brand family

Image source: Dr Pepper Snapple.

The deal was a surprise as Keurig parent JAB Holding is known for taking over coffee brands like Krispy Kreme, Caribou Coffee, and Panera Bread, but this is the company's first play at the cold beverage channel. The two companies said the merger would create "a new beverage company of scale with a portfolio of iconic consumer brands and unrivaled distribution capability to reach virtually every point-of-sale in North America." Dr Pepper Snapple's wide portfolio of brands that include Sunkist, A&W, and Mott's, as well as its namesake beverages, also seemed appealing to Keurig. 

Now what

The deal looks like a smart move for Dr Pepper Snapple shareholders as sugary drinks have fallen out of favor in the U.S., and the company does not have the same scale or global distribution that Coca-Cola and PepsiCo, making it less able to compete by pivoting to healthier brands through acquisitions.

Keurig Dr Pepper expects to realize $600 million in annual cost-saving synergies by 2021, and the combined distribution chains should help increase sales of both companies' brands.   

The deal is expected to close in the second quarter of 2018. Expect Dr Pepper Snapple stock to remain steady until the new company is created.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dr Pepper Snapple Group, Inc. Stock Quote
Dr Pepper Snapple Group, Inc.
DPS

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.