Texas-based Dr Pepper Snapple Group Inc. (NYSE: DPS) said it agreed to acquire New Jersey-based Bai Brands LLC and its complete portfolio of high-growth premium antioxidant infused beverages. The cash purchase price of $1.7 billion includes a tax benefit of $400 million on a net present value basis and will be financed through new unsecured notes and short term commercial paper.
The move comes a month after pop star Justin Timberlake made a minority investment in Bai Brands. In 2013, growth equity firm Strand Equity Partners made an earlier minority investment in Bai.
DPS said it expects to maintain its strong investment grade credit profile and has no plans to change its existing shareholder dividends and share repurchase distributions.
Bai provides a platform to incubate and grow better-for-you beverages throughout the non-carbonated and carbonated beverage sectors. It is expected to generate approximately $425 million in net sales in 2017 and add an incremental $132 million to our current net sales expectation for 2017. The deal is expected to be approximately $0.03 dilutive to reported diluted EPS in 2017 driven by planned increases in marketing investments behind the brand and increased interest expense associated with the financing of the purchase price. The deal is expected to be accretive to reported diluted EPS in 2018.
“We’re excited to welcome Bai into our family of great brands,” said Larry Young, DPS president and CEO. “In a relatively short time, Bai has carved out a leadership position in the enhanced water category and has now extended that success into other fast-growing and profitable categories. We’re equally impressed with their innovation pipeline, which will continue to meet the needs of consumers seeking great tasting, low-calorie beverages with natural flavors and no artificial sweeteners.”
“Bai has contributed greatly to our allied brand lineup since we began distributing it broadly in 2013. Adding it to the broad range of choices and options in our company-owned portfolio is a natural next step. Moving forward, we will empower Bai’s management team to continue the breakthrough and disruptive branding and innovation that have revolutionized their categories and work with them to put the brand in front of more consumers in more places,” he added.
Bai is one of the fastest growing beverage brands, offering a family of premium better-for-you beverages. The Company’s product portfolio spans across several high-growth beverage categories including enhanced water, carbonated flavored water, coconut water and premium ready-to-drink teas. With its Bai, Bai Bubbles, Cocofusion and other innovative brands, Bai is positioned for expanding growth in key beverage segments. These highly profitable categories are projected to continue to grow worldwide for the foreseeable future. The acquisition of Bai will further enable us to meet growing consumer demand for better-for-you beverages.
Bai, founded in 2009 by Ben Weiss, will operate within the Packaged Beverages segment and continue to be led by Weiss.
“Over the past seven years, Bai has proven to be an agent of change in a marketplace that is rapidly evolving,” said Weiss. “We’ve worked tirelessly to challenge the notion that better-for-you beverages can’t taste good. On our journey, we found a strong ally in DPS, an ally who embraced our mission to change the way the world drinks. Now, it only makes sense to continue our quest together. We are thrilled to join the DPS family and create a new path forward with infinite possibilities.”
The deal is subject to customary closing conditions and is expected to close in the first quarter of 2017. The boards of both companies have approved the transaction.
Credit Suisse Securities (USA) LLC is serving as exclusive financial advisor to Dr Pepper Snapple Group and Morgan, Lewis & Bockius LLP is acting as legal counsel. J.P. Morgan Securities LLC is serving as exclusive financial advisor to Bai and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel.
Dr Pepper Snapple Group operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Mexico, and Canada. The company operates through three segments: Beverage Concentrates, Packaged Beverages, and Latin America Beverages. It offers flavored carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, water, and mixers, as well as manufactures and sells Mott’s apple sauces.
The company sells its flavored CSD products primarily under the Dr Pepper, Canada Dry, 7UP, A&W, Crush, Sunkist soda, Schweppes, Squirt, and RC Cola brands; and NCB products primarily under the Hawaiian Punch, Snapple, Mott’s, and Clamato brands. It serves bottlers, distributors, and retailers. The company was incorporated in 2007 and is headquartered in Plano, Texas.