Dr Pepper needs a coffee break

Seven years ago, a deal was made, and Dr Pepper Snapple Group merged with Keurig Green Mountain to become the diversified beverage giant Keurig Dr Pepper.

Sure, the city fathers clucked their tongues and stroked their beards and wondered, “Are you really sure that it makes sense to be both a coffee company and a soft drink company,” or perhaps, “Those really don’t seem like similar products is all I’m saying,” and naturally, “I don’t see a lot of supply chain efficiencies across those two product lines,” but the companies defied the haters and merged.

Well, you really do have to hand it to the haters — they nailed it. They were totally right on this one.

Keurig Dr Pepper has announced a plan to buy Dutch-based JDE Peet’s NV for 15.7 billion euros (or roughly $18.4 billion) in an all-stock deal.

It will then cleave itself in two, separating the newly combined company’s coffee and other refreshment drinks into stand-alone entities. One company will sell coffee; another will sell soft drinks. You know, just like seven years ago.

“Upon separation, Global Coffee Co., with approximately $16 billion in combined annual net sales, will be the world’s largest pure-play coffee company,” Keurig said in a press release.

Investors appear to dislike this development, with the stock at the bottom of the S&P 500 and finishing the day down 11.5%.

The Takeaway

If there’s one persistent trend of the past few decades, it’s that markets abhor a conglomerate. Companies that try to have a diversified portfolio are often judged not by the strongest business in that portfolio but rather the weakest card in their hand. Keurig Dr Pepper is a strong fizzy beverage company with a struggling coffee business, and by splitting apart, presumably it hopes that investors will more appropriately value its cold bev biz.