Investor pushback on JDE Peet's acquisition drags Keurig Dr Pepper to 4-yr low

[Kuerig Green Mountain To Buy Dr. Pepper Snapple]
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Shares of Keurig Dr Pepper (NASDAQ:KDP [https://seekingalpha.com/symbol/KDP]) fell to a four-year low on Thursday, pressured by negative sentiment around its $23B purchase of Dutch coffee and tea group JDE Peet’s.

Since announcing the deal, Keurig Dr Pepper (NASDAQ:KDP [https://seekingalpha.com/symbol/KDP]) shares have lost 28% in value, illustrating what BNP Paribas analyst Kevin Grundy calls “one of the worst-received deals by investors in the consumer sector” that the firm has ever seen.

The deal [https://seekingalpha.com/news/4488676-what-investors-need-to-know-about-keurig-dr-peppers-deal-with-jde-peets]will position KDP as a global coffee leader, second only to Nestle, with $16B of pro forma long-term sales and $3.1B of EBITDA. KDP’s coffee portfolio will now have four $1 billion brands including Keurig, Jacobs, Peet’s, and L’OR, and 6 brands grossing over $500 million with a geographical balance of sales across North America, Europe, and 20% spread out across the remainder of the globe.

Once the acquisition is completed, KDP will split off its coffee and beverage business into two separate entities.

So why has the stock unraveled and shaved $11 billion off KDP’s valuation?

The lack of clarity regarding the complex mechanics of the split coupled with a resulting increase in debt has unnerved investors and some Wall Street analysts with BNP Paribas and Barclays both downgrading the stock.

“KDP’s fundamental setup no longer offers the compelling relative clarity that we had liked in the name previously,” Barclay’s Lauren Lieberman said, while BNP Paribas’ Grundy expects “risk to current expectations, deal risk, and credibility setback all likely to weigh on KDP’s multiple.”

Seeking Alpha analyst, The Value Investor, [https://seekingalpha.com/author/the-value-investor] did the math and concluded that with the increased debt necessary to pay for the deal with its current debt results in a leverage ratio of 6x EBITDA, not the 5.2x EBITDA the company states.

“In between all these moving parts—that of a massive acquisition, a separation, and some questions on the numbers – left investors confused,” The Value Investor said, pointing to drop in the share price from $35 to $27 within weeks.

Once KDP outlines the separation plan and explains the discrepancy between leverage ratios, KDP shares should find a bottom and begin regaining lost ground amid expectations that the value of two separate entities (beverages and coffee) are worth more than the sum-of-the-parts.

MORE ON KEURIG DR PEPPER

* Keurig Dr Pepper: Unlocking Value By Spinning Off Coffee [https://seekingalpha.com/article/4823344-keurig-dr-pepper-unlocking-value-by-spinning-off-coffee]
* Keurig Dr Pepper: Under Pressure Amidst Highly Transformative Decisions [https://seekingalpha.com/article/4822828-keurig-dr-pepper-under-pressure-amidst-highly-transformative-decisions]
* Keurig Dr Pepper: Post-Acquisition Reaction Valid, But Consider Opportunities [https://seekingalpha.com/article/4817465-keurig-dr-pepper-post-acquisition-reaction-valid-but-consider-opportunities]
* Keurig Dr Pepper's plan to split business presents execution complexities -- Barclays [https://seekingalpha.com/news/4498558-keurig-dr-peppers-plan-to-split-business-presents-execution-complexities---barclays]
* Keurig Dr Pepper slides to a multi-year low amid low confidence in JDE Peet's deal [https://seekingalpha.com/news/4497434-keurig-dr-pepper-slides-to-a-multi-year-low-amid-low-confidence-in-jde-peets-deal]