Hold on to your coffee cups. Keurig Dr Pepper (KDP) is solidifying its position as one of the world’s largest coffee companies on Monday in announcing an $18 billion deal to acquire JDE Peet’s, expected to close early next year.
The transaction will divide KDP into two independent public companies, one exclusively for the coffee business (“Global Coffee Co.”) and another focused on beverage refreshment (“Beverage Co.”). KDP CEO Tim Cofer will lead Beverage Co. from Frisco, Tex., while KDP CFO and president Sudhanshu Priyadarshi will be Global Coffee Co.’s chief executive, from Amsterdam, Netherlands.
Following the split, the coffee division is expected to generate $16 billion in annual net sales, while Beverage Co. forecasts approximately $11 billion.
The consolidation of KDP’s coffee business will expand its current portfolio to more international markets in over 100 countries. Upon separation, the coffee division will be diversified geographically with about 40% share in both North America and Europe, respectively, and 20% throughout the rest of the world.
“You can think about it as one plus one equals three,” said Cofer during a conference call this morning. “What we do at Keurig and our innovation capabilities with machines and brewers, and how we can bring that knowledge and technology to places like Sensio and Tassimo. On the other side, JDE Peet’s has a greater global scale and gives us access to expanding big ideas, some of which are in our pipeline. I think together, it really will be an unparalleled portfolio that’s stronger and more resilient.”
Despite the elevated price of green coffee and the impact of tariffs on Brazilian coffee exports, Cofer expressed optimism for going deeper in the set. Net sales were down 0.2% to $0.9 billion, in Q2 earnings call last month. International sales also trailed 1.8% to around $0.6 billion.
“I’m on record: We like the coffee category. Why? It’s huge, it’s ubiquitous, it’s a $400 billion TAM, and it’s a resilient grower,” Cofer said in response to a question about selling KDP’s coffee business over acquiring JDE Peet’s. “Here in this country, we’re seeing [coffee] begin to turn around. We would be selling a business that’s just beginning to turn around at a low multiple.”
In July’s Q2 report, Cofer explained that there was “sequential improvement” trends for KDP’s U.S. Coffee segment as “incremental pricing” has helped offset inflation and “volume remained resilient.” The company had announced that additional pricing actions would take effect during Q3.
In an analysis this morning, Jefferies’ analysts reported that the acquisition is a “good deal” and “recent pressure on (the) coffee biz is irrelevant, this is about growing within a $400b category – a category that is innovating and thus fragmenting in formats and channels. A globally diversified operation makes sense.”
The acquisition will allow KDP’s beverage division to focus on its direct-store delivery network across the U.S. and Mexico. KDP’s portfolio of soda, juice, energy and other non-alcoholic beverages will benefit from “multiple paths to win,” Cofer said.
Along with its distribution deal with C4 Energy and high-growth drink and supplement brand Bloom, KDP has made a series of acquisitions in the last year to solidify and diversify its reach in beverage. Last month, KDP acquired drink mix manufacturer Dyla Brands – producer of Stur– and energy drink and sports nutrition business GHOST in November.
“We have a proven buy-build partner model, and that means we don’t take a one-size-fits-alll approach,” he said. “We stay agile and flexible in looking at where are the growth spaces, where are the opportunities to add positions, what’s best for that partner and how can we do it in a highly capital-efficient way.”