Keurig Dr Pepper CEO Is Looking at Deals Worth Up to $20 Billion

(Bloomberg) -- Keurig Dr Pepper Inc. has spent the past three years bringing together two of the world’s largest drinks businesses. Now that that job’s done, Chief Executive Officer Bob Gamgort is on the prowl for the company’s next target. 

After capital expenditures and dividend costs, the maker of soft drinks and Keurig coffee brewers will generate about $4 billion worth of cash over the next three years from growing its sales, Gamgort said in an interview. That translates into a budget for mergers and acquisitions of about five times that amount.

“That’s the attractive algorithm going forward: Very competitive on an organic basis, but significant upside to deploy that $4 billion, which equals $20 billion M&A capacity,” Gamgort said. “Put that on top of our market cap, that’s game-changing in terms of value creation.”

Keurig Dr Pepper shares rose 2.5% at 9:58 a.m. Friday in New York, giving the company a market value of about $50 billion.

That kind of war chest could allow Keurig Dr Pepper -- itself the result of a 2018 merger engineered by investment firm JAB -- to acquire some of the industry’s largest players, or several moderately sized ones. Keurig Dr Pepper is seeking “move-the-needle but not bet-the-company type deals” in categories such as energy and alcoholic drinks, Gamgort said, and will only pursue transactions that won’t negatively impact its credit rating. It recently expanded into the water segment with the acquisitions of Bai and Core labels.

What Bloomberg Intelligence Says

“This is a sensible use of cash following deleveraging in 2018, as we think Keurig’s diverse array of strong beverage brands can generate steady EPS growth well into the future.”
-- Kenneth Shea, BI senior consumer products industry analyst

Click here to read the research.

In the absence of suitable buyout targets, the $4 billion could be spent on additional share buybacks or special dividends, Gamgort said. Separately on Friday, Keurig Dr Pepper announced a share buyback program worth as much as $4 billion over four years at an investor event, confirming an earlier Bloomberg report. 

The company also reiterated sales and profit forecasts for 2021, and announced that it expects annual revenue to grow by a mid-single-digit over the next three years. Much of those gains will be driven by purchases of Keurig’s coffee pod machines, which have been sold to about 11 million regular users since 2016 for a total of 33 million regular users in the U.S., Gamgort said. 

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