Dr Pepper Snapple Group Inc. (DPS), Plano, Texas, has reached an agreement to acquire Bai Brands LLC, Princeton, N.J., and its complete portfolio of high-growth premium antioxidant-infused beverages. The cash purchase price of $1.7 billion includes a tax benefit of approximately $400 million on a net present-value basis and will be financed through new unsecured notes and short-term commercial paper, the company says.
DPS stated that 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 strong platform to incubate and grow better-for-you beverages throughout the non-carbonated and carbonated beverage sectors, DPS adds. Bai is expected to generate approximately $425 million in net sales in 2017 and to add an incremental $132 million to DPS’ current net sales expectation for 2017. The transaction 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 transaction is expected to be accretive to reported diluted EPS in 2018, DPS states.
"We're excited to welcome Bai into our family of great brands," said Larry Young, DPS president and chief executive officer, in a statement. "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,” he continued. “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."
Bai’s product portfolio spans across several high-growth beverage categories, including enhanced water, carbonated flavored water, coconut water and premium ready-to-drink teas, the company says. With its Bai, Bai Bubbles, Cocofusion and other innovative brands, Bai is positioned for expanding growth in key beverage segments, it adds. The acquisition of Bai will further enable DPS to meet growing consumer demand for better-for-you beverages, the company says.
Bai will operate within the Packaged Beverages segment and continue to be led by founder Ben Weiss.
"Over the past seven years, Bai has proven to be an agent of change in a marketplace that is rapidly evolving," Weiss said. "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 transaction, which is subject to customary closing conditions, 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 adviser to DPS 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.