Private Equity Swoops In To Finance Keurig Dr Pepper's Contentious Acquisition Of JDE Peet's – CoffeeTalk

Apollo Global Management Inc. and KKR & Co. have agreed to financially assist Keurig Dr Pepper Inc. (KDP) in its contentious €16 billion ($18.5 billion) acquisition of JDE Peet’s NV, raising concerns over the long-term feasibility and implications of the deal. Prior to the acquisition, KDP was valued at $48 billion but has since suffered a $10 billion drop in market capitalization due to shareholder apprehensions regarding the associated debt, which initially pushed leverage close to six times earnings before interest, tax, depreciation, and amortization (EBITDA).

The joint transactions involved selling a 49% stake in a coffee-pod manufacturing venture to Apollo and KKR for $4 billion, with the right for KDP to buy back the stake later, while also implementing a $3 billion preferred share deal that offers a 4.75% dividend and a conversion option to KDP stock if share prices rise to $37.25. The overall structure raises capital costs to approximately 7.3% over ten years, higher than the original plan using senior debt, but aims to alleviate leverage concerns highlighted by investors.

Despite a brief share-price rally following the financing announcement, skepticism remains among shareholders about the high leverage and the merit of acquiring a struggling European entity. Analysts at RBC Capital Markets estimate a fair value of KDP shares at $42, a 20% increase from pre-deal levels, suggesting there is potential for recovery contingent on management’s actions.

Activist investor Starboard Value has also entered the scene, though their influence on the acquisition remains uncertain, as KDP shareholders will not have a vote in the binding offer. Discussions surrounding the governance of large transactions have emerged, questioning whether shareholders should have more say in significant corporate dealings, especially given the controversial nature and high-stakes environment surrounding such buyouts.

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