Keurig Dr Pepper’s Shares Fizz Amid Private Equity Cash Infusion
The recent investment from private equity firms could help protect Keurig Dr Pepper from activist investors like Starboard.
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Dr Pepper’s getting a 24th flavor: leveraged buyout with notes of debt restructuring. Parent company Keurig Dr Pepper (KDP for short) scored $7 billion from KKR, Apollo Global Management and Goldman Sachs. The investment will be divvied up, with $4 billion going toward making new K-Cup pods and $3 billion put into preferred convertible stock.
The beverage conglomerate also lifted its annual sales forecast, and shares of the company (which owns brands including Canada Dry, Snapple and Hawaiian Punch) fizzed up about 8% as of yesterday’s market close.
Feeling Hot and Cold
Dr Pepper became America’s second-most popular soda behind Coke last year, surpassing Pepsi’s market share. KDP’s net sales climbed 11% in the most recent quarter, reported yesterday, led by a 14% boost in beverage sales. The company’s coffee division, however, hasn’t been as steamy:
- The sector’s sales ticked up less than 2% last quarter. Keurig warned investors earlier this year that its coffee biz could go cold as the company faces droughts and tariffs in the top coffee bean-producing countries of Brazil and Vietnam. At the same time, the coffee industry has struggled with budget-conscious consumers skipping out on little treats.
- KDP in August announced it was doubling down on PSLs anyway with an $18 billion acquisition of JDE Peet’s and a plan to split its coffee biz off from its soda-focused side. Investors weren’t buzzy about the news, and KDP’s stock plummeted 20%. Enter: Activist investor Starboard, which has built up a stake in the company, presumably with plans to push for changes from the inside.
Shaken Up: The recent investment from private equity firms could help protect KDP from activist investors like Starboard, sources told the Financial Times. PepsiCo, meanwhile, is coping with similar pressures: Activist investor Elliott Management snapped up a $4 billion stake in PepsiCo as investors grew concerned about its beverages losing market share to rivals, including Dr Pepper. Elliott suggested that PepsiCo should break up its biz and spin out its bottling arm, a move critics say would be too costly. Throughout the food and beverage industry, companies including Kraft Heinz and Kellogg’s have been splitting up their businesses to bolster profits.
