Market Overview

Credit Suisse Sees Low Probability Dr. Pepper Will Make A Bid To Buy Bai Beverages

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Credit Suisse’s Laurent Grandet said there has been an unconfirmed Reuters report that one of the Allied Brands of Dr Pepper Snapple Group Inc. (NYSE: DPS), Bai, has hired a financial advisor to explore a potential sale.

Grandet maintained an Outperform rating on Dr Pepper Snapple, with a price target of $108.

Sale Unlikely

The analyst believes “the risk of a sale being consummated is relatively low given 1) the steep reported valuation and 2) the lack of potential buyers, in our view.”

Whatever the outcome, Grandet believes the pipeline of new brands that are entering the market and Dr. Pepper Snapple’s history of successful incubation would help the company quickly replace Bai in its portfolio without impacting the algorithm.

“Bai's valuation appears optimistic. The brand is reportedly seeking a $2B price tag, which we think represents the very high end of what it could actually fetch,” the analyst stated.

Low Probability Of Bid

Dr. Pepper Snapple had purchased a 3 percent stake in Bain in early 2015 for $15 million, implying a valuation of $500 million, excluding any control premium.

“While not out of the realm of possibility, we think it's unlikely that any serious financial or strategic buyers emerge at this price. Dr Pepper Snapple not a likely bidder,” the analyst pointed out.

Grandet believes that there is low probability of the company bidding for Bai, especially at such a high valuation.

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Latest Ratings for DPS

DateFirmActionFromTo
Jun 2018Stifel NicolausDowngradesBuyHold
Mar 2018RBC CapitalUpgradesSector PerformOutperform
Mar 2018Stifel NicolausMaintainsBuyBuy

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