THE DEAL: AN ABSOLUTE GIFT FOR THOSE STUPID ENOUGH TO OWN DR PEPPER STOCK
Keurig Green Mountain (private held by JAB) is seeking to buy Dr Pepper Snapple (NYSE: DPS) to create a beverage conglomerate ($11b in revenues) of sugary, non-premium, unsophisticated, distinctly American brands, or as their official press release imagines it:
They’ll keep the corporate entity public, with JAB owning 87% of the company and current Dr Pepper shareholders owning the remaining 13%. Dr. Pepper shareholders will receive a one-time special dividend of $103.75.
Our Take on Current Valuation
- DPS closed on Friday at $95.47. Earnings for the trailing 12 months was $4/share — this isn’t a growth company so it’s fair to assume that number is not moving a whole lot higher. The stock was trading at 24x P/E (trailing) vs the S&P 500 at 23x P/E (trailing). Stock and the market are rich, but for the sake of this analysis let’s assume the 24x P/E multiple was a fair valuation (it’s absolutely not, but we need something to work with for the math).
- Keurig is offering $103.75 for 87% of the company, so on Friday that 87% of the company was worth $83.05 – equating to a very healthy premium of 25% to the last closing price.
- The stock traded up to $117.07 on Monday. Our view is that the stock should trade no higher than $116 in the current euphoric market environment – A SELL.
But hey, don’t take our word for it, you have to listen to the CEOs of both respective companies to understand what a mess this is, spouting off about how the deal offers investors an innovative ‘total beverage solution’ — wait for it… serving both HOT and COLD beverages. You simply can’t make this shit up.
But wait, it gets better. They provide a made-up $600 million synergy savings target, and the CEO of Keurig states:
THESE ARE THE BRANDS OF THE FORGOTTEN PEOPLE, TRUMP’S PEOPLE
Let’s deal with some harsh realities and associations of these broken brands:
- Keurig Coffee Machine in your office: boss is a dick and you’ve likely been #METOO’d
- Dr. Pepper is your go-to drink: Diabetes is a given
- Motts for health: Only form of vegetable intake