Starboard Value has reportedly taken a stake in Keurig Dr Pepper following the announcement of its plan to acquire JDE Peet’s in August, which was negatively received by investors at the time.
The US hedge fund has been building a stake in the soft drinks major since the deal was announced and has been in private talks over recent weeks with Keurig Dr Pepper’s management and board, people familiar with the issue told the Financial Times.
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Just Drinks has contacted Keurig Dr Pepper and Starboard Value for comment.
Shares in Keurig Dr Pepper were up 2.32% to $26.32 at 11:18 BST today (14 October) following the news reported yesterday.
The size of Starboard stake was not clear at the time of reporting, the Financial Times said. Sources said that talks with between the activist investor and Keurig had so far been centred on enhancing execution and reestablishing investor confidence.
The Snapple brand owner announced its intention to snap up the Dutch coffee company JDE Peet’s for $18bn in August.
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By GlobalDataAt the time, it said it subsequently intended to separate into two publicly traded entities named Beverage Co. and Global Coffee Co. “as soon as practicable following the close of the acquisition”.
The Global Coffee Co. business, Keurig Dr Pepper then said, will become the “world’s largest pure-play coffee company”, with roughly $16bn in combined annual net sales.
Initial market response to the deal was negative, with shares sliding the day the acquisition was announced (25 August).
In a note to clients at the time, Barclays analyst Lieberman said the negative market response was partly due to “some criticism of the optics around” involvement of JAB Holding, which has investments in both Keurig Dr Pepper and JDE Peet’s.
JAB Holding owned the majority of Keurig Green Mountain in 2018 and was the controlling shareholder of Keurig Dr Pepper when the business first merged.
In February, JAB sold 3 million shares of common stock in Keurig Dr Pepper, leaving it with a 10.7% stake. In May, JAB sold another chunk of its stake, leaving it with a 4.4% shareholding.
Last October, JAB upped its stake JDE Peet’s to 68% when it acquired Mondelez’s stake in the business.
Other analysts at the time also saw Keurig Dr Pepper investors’ negative response to the deal arising from uncertainty around the group’s coffee business.
TD Cowen analyst Robert Moskow described the deal in August as “the refill investors didn’t want”, arguing that investors have a lack of confidence in the coffee division.
Compared to KDP’s refreshment beverages business, Moskow says investors see coffee as a segment that the company should reduce its focus on to allow its soft drinks unit to shine.
“In our experience, shareholders of KDP generally tout the trapped value of the high-growth US Refreshment Beverages division as the reason to own the stock and believe that management should de-emphasize Coffee given that it has struggled for years.”
In its second quarter results released in July, Keurig Dr Pepper saw relatively flat net sales for its US coffee business, declining 0.2% to $900m. US coffee net sales dipped 2.6% to $4bn in its full-year results for fiscal 2024.
In her note, Barclays’ Lieberman also highlighted that the combined acquisition and business split likely came as an “considerable surprise” which also contributed to Keurig Dr Pepper’s “underperformance” on Monday.
She adds, “we suspect investors were primarily interested in gradually improving US Coffee fundamentals and continued solid momentum in USRB”.
