Keurig Green Mountain’s Acquisition of Dr. Pepper Snapple has led to the creation of a newly merged company Keurig Dr. Pepper. This paper will analyze the merger, the nonalcoholic beverage industry that both companies compete in, as well as the strategies that both companies have had prior to the merger and how those strategies change in a combined venture. The overall value of the purchase will be looked at as well as any benefits that can be achieved for the Keurig brand by acquiring Dr. Pepper Snapple.
Keurig Green Mountain’s (KGM) Acquisition of Dr. Pepper Snapple Group (DPS)
On 29th January 2018, Keurig Green Mountain and Dr Pepper Snapple announced that they were to merge through a laid down agreed procedure. Under the approved
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terms, Dr. Pepper Snapple shareholders expected to obtain $103.75 per share in dividend and additionally, retain thirteen percent of the joint firm (Bell, 2018). In my discussion, I shall focus on analyzing how the whole process occurred and the impacts of this merging of these two beverage organization Industry Analysis Michael Porter provided five crucial forces that the business firms need to comprehend the composition of their industry and stand where they are unique, generate more profit, and free from disastrous risks. Thus, Keurig Green Mountain and Dr. Pepper Snapple Group must understand these forces as they continue to implement their strategic plan (Bell, 2018). The forces are elaborated below. First, there is they need to consider the threat of new entrants to the market.
New firms that want to sell beverages can be attracted by higher returns made by the Keurig Dr. Pepper. The new firms can decrease the profit made by Keurig Dr. Pepper. If the profit falls below zero, it can throw Keurig Dr. Pepper firm out of the market. To avoid this, Keurig Dr. Pepper (KDP) must employ unique strategies on how to create a barrier for entry of new rival firms into the market (Stone, 2018). The KDP has to make all necessary steps to maintain their market share. Such steps include utilizing their creditworthiness to acquire bank loans that can help the firm to expand and dominate the market ( Rahman et al., 2015). The organization can also lower prices of their products to create unfair competition with newcomers. The organization has huge capital to avoid low prices to attract many customers and discourage them from buying from recent firms. Keurig Dr. Pepper should also maintain favorable customer loyalty to ensure that customers will not shift and buy other substitutes from brand new business organizations. KDP will also set differentiated beverages for customers in a great way (Rahman et al., 2015). The uniqueness of their products will create a competitive environment with the other products from the rival …show more content…
newcomers. Second, the Keurig Dr. Pepper must reflect on the threat of substitute products from the competitors. Substitutes limits the gains of KDP because they provide more products in the market thus the prices of beverages from KDP must be lowered by market forces to an equilibrium. To minimize such circumstances from happening, KDP must embark on the massive advertisement of their beverages products. They must make distinct products that can pose great competition in the industry. Thirdly, the KDP must take into account the bargaining power of the customers. Buyers have a great influence on the price of commodities. They can decide to protest due to high prices of beverages. Sometimes they can resist to buy beverages from KDP and opt for substitutes from other firms (Rahman et al., 2015). To surpass this pressure, Keurig Dr. Pepper can charge reasonable prices on beverages. The firm can also create a close relationship with their customers. Moreover, KDP should rethink of bargaining power of the suppliers. Suppliers of raw materials for beverages can pose threats to KDP (Stone, 2018). They can overcharge this beverage firm hence eroding its profit. The suppliers have an impact on survival of the KDP firm because they can influence the laborers to strike hence squeezing the profitability of this beverage firm. Furthermore, KDP must be cautious with the industry rivalry. The competitors who sell various drinks leads to price wars (Stone, 2018) To overcome this, the Keurig Dr. Pepper must make hefty investments on unique beverages that differ from what the competitors’ offer. The above findings depict that the new entrants have low possibility to prosper. The new product of merging, Keurig Dr. Pepper, has huge capital, large market and high productive power to control the market. It can fuel stiff competition to the newcomers who will, therefore, be kicked out of the market (Sarala et al., 2016). The most active forces in the beverages market are the threat of new beverage firm and the threat of substitutes. Strategy of Keurig Green Mountain Keurig Green Mountain is an organization that specializes in production and supply of coffee, also deals with brewing systems. It is dedicated to delivering brewed, great cup quickly and reliably. Before its merge with Dr. Pepper Sniper, it had outlined its strategies. The firm outlined sustainability as a basic meaningful element of their endeavors. They were focusing on building their brands and expand their business in a profitable direction (Sarala et al., 2016). They were innovating via a holistic system, formulating beverages, and engaging the entire system of brewing. Also, they were dedicated to creating profitable mutual partnerships to get a competitive advantage in the industry (Stone, 2018). Moreover, the firm was busy in enhancing proper governance and good coordination among all departments to promote cooperation. Strategy Change The strategy of Keurig Green Mountain changed partially after it acquired Dr.
Pepper Snapple. However, KGM is the firm that got more power in the newly formed business entity. They had to change some part of their strategy to accommodate the Dr. Pepper Snapple. Contrasting strategies between the two may lead to a better overall strategy if the merger of the two companies proves to be successful. Dr. Pepper Snapple has long operated on the cost minimization strategy as it has tried to stay competitive in the soft drink industry with the likes of Coca-Cola and PepsiCo. Combining this cost strategy with Keurig’s strategy of developing strong supplier relationships and strong core values can move the new Keurig Dr. Pepper company forward in the
future. Analysis of Expansion The form of merge portrayed is known as horizontal integration. The new firm formed will increase production of coffee and beverages in the same supply line. Keurig and Dr. Pepper are two competitors in the market. Analysis of Deal The acquisition of Dr. Pepper serves to diversify the product offerings of Keurig and their group of brands. The merging of these companies can fuel their survival in the competitive industry and help both compete against the big players in their segments of the industry. There are benefits to this acquisition as well as some disadvantages that can hinder profitability of the company going forward. These benefits as they will be described can be substantiated, conversely the disadvantages of the deal can grow to become a burden on the newly merged companies bottom line Advantages of the acquisition of Dr. Pepper by Keurig. First, the new big firm formed, i.e., Keurig Dr. Pepper will acquire many skilled laborers. The quality staff will be useful in running the daily transaction of the KDP (Stone, 2018). They will come up with innovative ideas which they can implement in the organization. Such innovation can create a competitive advantage of the corporate in the market industry. Second, the new company formed will acquire more fund and profitable assets that will accelerate its development. The finances of the two enterprises will be combined to yield bulk fund that will be used to expand the business (Sarala et al., 2016). The business creditworthiness has improved hence enabling the new enterprise to get loanable funds for investments. For instance, JAB Holding company has pumped in an equity investment which has amounted up to $9 billion as part of the business capital (Bell, 2018). Thirdly, the market share has increased because of production of more advanced soft drinks and coffee. The number of customers has also risen significantly because the business will serve customers from both Keurig and Dr. Pepper Snapple (Bell, 2018). Profit will be generated in large amounts due to increased sales of beverages. The Keurig Dr. Pepper will, therefore, advance at a higher rate and survive in the industry. Also, the number of overheads and cost will decrease in Keurig Dr. Pepper. The shared market incomes from shares returns will raise the amount of money required to meet the costs (Sarala et al., 2016). The purchasing power of the customers will improve due to quality products hence more sales will raise profit required to cover the costs. Moreover, competition in the market will reduce. The Keurig Green Mountain and Dr. Pepper Snapple group were two rivals before the acquisition, but after integrating they work together to accomplish their objectives. They produce more differentiated commodities to the market thus avoiding stiff competition from their rivals. Disadvantages of the acquisition Acquisition can make a Keurig Dr. Pepper to get more synergies and many benefits from economies of scale like profits and efficiency, on the other side there can emerge drawbacks (Bell, 2018). The major disadvantages are explained as follows. First, if the two organizations had two different culture, this can lead to conflict among the members. It can be too tedious for employees to learn and adapt to new culture formed after merging (Bell, 2018). For instance, if the Dr. Pepper Snapple group was so innovative, but the Keurig Green Mountain was a traditional organization, the difficulties can arise when these organizations are working together. Also, the amount of time needed for both parties to successfully arrive in good terms might be long. Another disadvantage of this merger combining two large companies in the industry is the negative consumer perception of the newly formed Keurig Dr. Pepper that could be instilled in the mind of the buyers. They may view the new organization as a monopoly. Customers will then shift from buying the products of the firm. Thus, fewer returns are made from sales. Lastly, the layoff dilemma will be one of the shortcomings of this combination of firms. The two merging business will be forced to reduce laborers so that the efficiency of the KDP to improve (Bell, 2018). During the merge, people can lose jobs thereby contributing to lagging economic growth. Moreover, there was a risk of uncertainty on how employees behaved and how long it would take them to learn the new business terms and duties. Justification of Transaction The purchase price of $19 billion plus the stock is significant. The merging will lead to economies of scale which could allow Keurig Dr. Pepper to make more revenue and generate better returns. Therefore, this price, though it appears to be an expensive one, the benefit that will emerge from this acquisition will lead to the price being perceived as fair in the coming years (Stone, 2018). The companies will achieve greater profitability in a combined effort in the beverage industry. This deal will pay off because the two companies are on opposite ends of the same industry with very little competition between their products in the hot beverage coffee market and the cold carbonated drink sector. Being able to reach customers with their product offering throughout the day is something that other competitors in the industry cannot do. The merged company will possess qualified laborers, wide market share, improved sales, higher production output and combined leadership are major factors that will make this company so profitable. Hence, by 2021 the company can generate their target profit of $600 million in annual synergies.
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