Market Overview

Deutsche Bank's Beverages Analyst Talks Dr Pepper-Keurig Union

Deutsche Bank's Beverages Analyst Talks Dr Pepper-Keurig Union

Dr Pepper Snapple Group Inc. (NYSE: DPS)'s decision to sell itself to Keurig Green Mountain was an "unexpected" move, according to one of Wall Street's top beverage analysts.

The Analyst

Deutsche Bank's Steve Powers discussed the M&A deal during CNBC's "Squawk Box" segment Tuesday.

The Thesis

Dr Pepper Snapple's name has been floated in the past as a takeover candidate, mostly from other "traditional members" of the soft drink industry, Powers said. Keurig's takeover of Dr Pepper Snapple is "out of left field," which may have resulted in more questions being asked than answered, he said

For instance, the strategic rationale behind the deal is unclear, as "Dr Pepper can sell on Amazon without Keurig, and Keurig can sell in convenience stores without Dr Pepper."

Powers previously rated Dr Pepper's stock with a Buy amid a view that the stock boasted "intrinsic value that was underappreciated by the market" — and it could be that Keurig's parent company JAB Holdings felt the same way.

The merger could be seen as a "back door way" for Europe-based JAB Holdings to IPO the Vermont-based maker best known for its single-serve coffee machines, Powers said. Doing so would provide a pathway for JAB Holdings to monetize its investment after buying Keurig in 2015 and taking it private. 

JAB Holdings is acquiring a "solid asset" in Dr Pepper Snapple and a path of liquidity for its Keurig investment, Powers said.

Price Action

Shares of Dr Pepper Snapple Group were trading higher by 1.77 percent midday Tuesday.

Related Links:

JAB Buys Panera; Analyst Foresees Near-Term Slowdown In Restaurant M&A

Sugar And Spite: Big Cities Taxes On Beverages Irking Big Soda

Photo courtesy of Dr Pepper. 

Latest Ratings for DPS

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

View More Analyst Ratings for DPS
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