Keurig Dr Pepper has secured additional financing for its €15.7bn ($18.36bn) acquisition of the Dutch coffee group JDE Peet’s and the planned separation of the combined business into two distinct entities.
The US-based beverage company has increased its convertible preferred equity investment allocated for the future entity, tentatively named Beverage Co., from $3bn to $4.5bn.
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Consequently, Keurig Dr Pepper has abandoned its plans to pursue a partial IPO of Beverage Co., which will cater to the non-coffee beverage segment of the merged company.
The company intends to split into two entities, with a separate division provisionally named Global Coffee Co., “as soon as practicable” following the completion of the deal. The firm expects to close the transaction by early April and aims to finalize the split by the end of the year.
This expanded convertible preferred equity initiative is co-led by Apollo and KKR, with participation from additional investors, including accounts advised by T Rowe Price Investment Management.
Keurig Dr Pepper also mentioned that other “high-quality, long-term oriented investors” are taking part in this funding round.
The terms of the preferred equity are largely consistent with those previously announced in October, featuring an initial conversion price of $37.25 per share and a 4.75% preferred dividend rate, as noted by the company.
Post-separation, Beverage Co. will retain the preferred equity instrument.
Upon announcing the deal in August, the company noted that Beverage Co., headquartered in Frisco, Texas, would position itself as a “scaled challenger” within North America’s $300bn refreshment beverage market, reporting $11bn in annual sales.
With an estimated $16bn in combined annual net sales, Global Coffee Co. is set to emerge as the “world’s largest pure-play coffee company,” as stated earlier.
The global headquarters for Global Coffee Co. will be located in Burlington, Massachusetts, with its international headquarters in Amsterdam, Netherlands.
Keurig Dr Pepper’s CFO, Anthony DiSilvestro, remarked that the updated funding plan introduces $1.5bn of “cost-efficient equity capital” and enriches the shareholder mix. He emphasized that the funds would aid in “rapid deleveraging” and help both Beverage Co. and Global Coffee Co. attain “successful, investment-grade” status.
Under the new funding arrangement, Keurig Dr Pepper aims to finance the acquisition with approximately $9bn of long-term debt, $8.5bn of equity capital, and by assuming around $5bn of existing JDE Peet’s bonds.
The company anticipates a combined net leverage of roughly 4.5x upon closure, reiterating its expectation that the deal will result in about a 10% earnings-per-share benefit in the first full year.
Keurig Dr Pepper is also exploring additional strategies for expediting deleveraging, including potential monetization of non-core assets.
Regarding the coffee segment of the deal, Keurig Dr Pepper confirmed that definitive agreements have now been executed for the Global Coffee Co. pod manufacturing joint venture initially announced in October.
This joint venture comprises a $4bn investment co-led by Apollo and KKR, with backing from Goldman Sachs Alternatives, and remains subject to customary closing conditions.
Key Takeaways
- Keurig Dr Pepper increases financing for JDE Peet’s acquisition from $3bn to $4.5bn.
- The planned partial IPO of Beverage Co. has been canceled.
- Global Coffee Co. aims to be the largest pure-play coffee company globally.
- Funding mix includes $9bn of long-term debt and $8.5bn in equity capital.
- Completion of the deal is expected by early April, with a split by year-end.
- The company is evaluating additional measures to enhance its financial standing.
FAQ
What is the purpose of the acquisition?
The acquisition aims to enhance Keurig Dr Pepper’s market position by expanding its product offerings in both coffee and non-coffee beverages.
What are the expected benefits post-separation?
The separation is anticipated to allow both entities to focus on their respective markets more effectively, enhancing operational efficiency and growth potential.
When is the deal expected to close?
The transaction is projected to be finalized by early April of this year.
What will happen to the company structure after the split?
Post-split, Keurig Dr Pepper will consist of two companies: Beverage Co., focusing on non-coffee drinks, and Global Coffee Co., dedicated to coffee products.
