JAB Holding Company, along with its partners, will control 87% of the combined Keurig and Dr. Pepper Snapple (NYSE:KDP). The new company will join dozens of other coffee and food brands in JAB's portfolio.
In this segment from Industry Focus: Consumer Goods, Vincent Shen welcomes Motley Fool contributor Daniel B. Kline to the studio to offer his take on what the new ownership structure means for shareholders and JAB's ability to pursue future deals.
A full transcript follows the video.
This video was recorded on Jan. 30, 2018.
Vincent Shen: The fact that Keurig basically going public again through Dr Pepper Snapple will also allow JAB and its partners to harvest their two-year-old investment in Keurig a little bit more easily. On the flip side, I also think it will ultimately give the combined entity, Keurig Dr Pepper, more flexibility to pursue these potential future deals and other acquisitions. That's definitely not something we can rule out, given the way JAB operates with their shopping spree in the past several years.
Closing points. If you end up a Keurig Dr Pepper shareholder, Dan, what are you the most worried about? I've seen some people bring up the $17 billion of debt that there's supposed to be post-deal. Management says they'll be reducing that debt load in several years thanks to the company's strong cash flows. But that's definitely a risk nonetheless. But is there anything that's keeping you up at night?
Dan Kline: Yeah. I worry -- and we've talked about this with other companies. We talked about it with Sprint and CBS and Viacom. I worry when a public company is mostly controlled by a private entity. There are only two independent board seats on a seven or eight person board for the new company. So you, as a shareholder -- and you have to remember this -- you are not going to be the primary interest of this company. Now, your interests may align with JAB's and their shareholders, and I expect that they will most of the time. But if there is something that provides short-term, better liquidity or a score or whatever it is for the company that owns most of it, and you have to sacrifice shareholders to do that, with only 13% of the company in shareholders' hands, that doesn't give me a lot of confidence.
Shen: Yeah. I think, you already have the integration risk and challenges that you would expect from bringing any companies like this together, especially pretty different ones here. But in this situation specifically, investors do have to remember what you mentioned, Dan, in terms of the differing incentives and other factors cooking beneath the surface between Keurig, JAB, its many, many portfolio companies, and the relationship between all of them. And again, remember, public ownership, 13% of the company. JAB and its partners, including Mondelez, 87% ownership.
Kline: And there's just one other thing that worries me. On one hand, it's great that JAB buys a company like Panera that's very well run and helps it focus, gives it some resources. But the fact that they have not gone to Panera and said, "Hey, by the way, we own Peet's and Caribou and you don't have a branded coffee service, can we integrate this into your brand?" It does concern me that, maybe there's some big strategy that's going to happen all at once, but the fact that they're not going in and saying, "You have to do these things," or exploring what the synergies between their various owned products are, it concerns me that there's a lot they could do with this new combined Keurig Dr Pepper that maybe they won't.
Shen: OK. So the deal, again, is expected to close this summer, barring any issues with regulatory approval. We don't foresee any of those, given that they're very different businesses, Keurig and Dr Pepper Snapple.
Kline: And also, the total revenue is about what Coca-Cola does in a quarter, so there really aren't any antitrust concerns here.
Shen: So, Dan and I will be bringing you updates on this deal as they come.