Keurig to Acquire Dr Pepper Snapple in Largest Soft-Drink Deal Ever | Hacker News Reader

Keurig to Acquire Dr Pepper Snapple in Largest Soft-Drink Deal Ever

morningstar.com

75 pointsfiveFeet38 comments

Interesting change of perspective.

News article from the US (Texas): https://www.texasmonthly.com/the-culture/dr-pepper-keurig/ "The Yanks Have Bought Dr Pepper"

News article from Germany: http://www.handelsblatt.com/unternehmen/handel-konsumgueter/... "German billionaire family Reimann buys Dr. Pepper"

I guess both are true, since Keurig is still a US run company, although its majority is owned by JAB holding.

Being from Europe, this article was rather confusing to read, because it named a number of soda brands that I was sure belonged to The Coca-Cola Company and PepsiCo. So I looked Dr Pepper Snapple up on Wikipedia:

- The rights to Dr Pepper are owned by them in the U.S., but by The Coca-Cola Company mostly everywhere else.

- The rights to 7 Up (or 7up) are owned by them in the U.S., but by PepsiCo everywhere else.

- The only brand I see on their Wikipedia page that I know and that they also own in Europe appears to be Schweppes.

"The company would have $11 billion in annual revenue, the companies said. It also would have about $16.6 billion in debt. Wells Fargo analyst Bonnie Herzog estimates the combined company would be valued at about $33 billion."

Could someone please explain how on earth that adds up. I'll accept that when corp. valuations involve 10^9, then the usual rules of value might get a bit weird. Perhaps assets include a state or a slack handful of counties.

Looks like a comparable revenue multiple to Mondelez (MDLZ), the demerged snacks business which emerged from Kraft post Cadbury Schweppes takeover. So this looks completely unremarkable. Interest rates are very very low, so the debt doesn't seem like an enormous deal.

Presumably debt shrinks while revenue grows so as long as debt is within an order of magnitude or so of revenue it isn't really held against it.

it's a ~4.5x multiple on revenue, minus debt. doesn't seem too outrageous to me?

edit: it's also almost $2bn less than the sum of the two individual companies market caps. (13.7bn for keurig, 21.1bn for dr pepper snapple)

When one company buys another it has to assume it's debt.

Enterprise value = equity + debt - cash on hand (and other adjustments sometimes)

So if a company has financed its growth with debt, you still have to pay for that if you're acquiring them so it adds to the valuation.

-$16.6 billion in debt is a scalar and +$11 billion in annual revenue is a rate. But is all that revenue profitable?

It doesn't mention it in the article, but Dr. Pepper reports profit of about $1 billion per quarter and does not appear to be in any state of distress: https://finance.yahoo.com/quote/DPS/

What doesn't add up with the numbers you quoted? Being valued at higher than revenue isn't odd, that's a stocks vs. flows issue. Same with the debt, that's not too much relative to market cap.

Initially this sounded like AOL buys TimeWarner, but since it's a cash dividend that doesn't seem to be the explanation. I suspect there is a significant tax benefit as is often the case when a foreign company takes over an American one (known as a tax inversion).

A leveraged buyout is like a mortgage. When you get a mortgage for a house you have to prove income. When you buy a business using a loan you need to prove income from the business. $11 billion in revenue doesn't tell you much, what you need to know is net-revenue. That tells you how long it'll take to payoff the debt.

I wonder what the "artificial flavor" is in non-diet Dr. Pepper. It may be that it's a part of the formula that's always been there, but I was wondering if perhaps it is sucralose that is replacing some of the sugar in order to cut costs and calories.

Isn't Dr. Pepper currently distributed through Pepsi? I wonder how this will affect that.

In the US, yes. In many other parts of the world it can come to you through Coca Cola.

Its split in the US between Coke and Pepsi https://en.wikipedia.org/wiki/Dr_Pepper#Distribution

The bottling by Coca-Cola and Pepsi is mostly a legacy of the time when both of those were bottled by independent but contracted bottlers who sometimes also bottled Dr. Pepper, and has decreased since those companies have largely bought out their bottlers. That will probably continue to decrease, but yet another merger of the corporate parent not directly related to the production chain probably won't significantly accelerate or decelerate it.

Looking forward to single-serve barcoded doctor pepper keurig cups.

nothing better than a nice hot cup of doctor pepper to get me going in the morning

From the wikipedia page (https://en.wikipedia.org/wiki/Dr_Pepper#Marketing):

    In the early 1960s, Dr Pepper promoted the idea of
    serving the drink hot with lemon slices in winter. 
    This idea appeared in the film Blast from the Past
    initially set in the early 1960s.

hot cola with lemon is a thing in Hong Kong

Hot cola with slices of ginger and lemon is a great pick-me-up when having a cold.

Many dilution-based drinks are quite good made with hot water - don't knock it before you've tried it.

what are dilution drinks?

Maybe drinks that are shipped as syrup and prepared by mixing carbonated water with the syrup?

Not normally made with carbonated water, no; the citrus flavours do work well with carbonation, but berries less so.

Fruit concentrates usually, like lemon, blackcurrant, orange etc. squashes, but also cordials made from various herbs and spices, roots, etc.

If you're in the UK, there's normally a two or three metre section of shelving dedicated to them in the supermarket.

I frequently see tech workers in SF drinking soda in the morning (ie before 10am) and it completely blows my mind as a French person. I had a coworker who would drink a coke upon arriving at his desk every day. I mean, I enjoy being unhealthy too, but I usually save it for later in the day.

First you might want to get your countrymen to ease up on the smoking all day thing they are wont to do.

I’m all for that, but sadly I do not have the powers you seem to think I have.

Americans often put as much sugar in coffee as they do in soda. If I'm going to drink a sugary beverage in the morning, it may as well be something I like.

I don’t put 43 grams of sugar in my coffee and I don’t know anybody who has. Most people I know take their coffee without any sugar at all. But then again I haven’t met everybody in the us, so I digress.

(Essentially) No one dumps 40 grams of granulated sugar into their brewed coffee. But Starbucks and other coffee shops sell a lot of "coffee" drinks with sugar contents in that range. A grande mocha has 35 grams of sugar.

https://www.starbucks.com/menu/drinks/espresso/caffe-mocha#s...

It's not just Americans. When I was working in Italy, some of my Italian colleagues would put an entire sugar packet into a single shot of espresso.

I'm an American and I find sugar in coffee or tea to be a vile perversion. Meanwhile, I'm always finding sugar packets served with coffee abroad, it comes on the saucer even when ordering sans sucré.

[inhabitants of any large country] often [do anything you can think of] because there are a lot of people there who do a lot of different things.

I sometimes go to Starbucks and get something that is basically a milkshake, but I get my coffee elsewhere and I never add sugar to it.

Yeah, you should stick strictly to coffee or wine before 10am. ;)

Usually coke zero though :)

And more garbage from all their packaging to fill the ocean gyres and to pay third-world nations to fill their landfills with.

Reply on news.ycombinator.com