Dr Pepper Snapple Group Inc. (DPS) announced the completion of the transaction with The Coca-Cola Company (KO) to license some of its brands. The agreement grants Coca-Cola the distribution rights for Dr Pepper in the U.S. and Canada Dry in North East U.S. for a one-time payment of $715 million. Dr Pepper Snapple has plans to use a fraction of the cash proceeds to augment its share repurchase program.
The 20-year deal (with a provision for 20-year renewals) with Dr Pepper Snapple Group is part of Coca-Cola’s acquisition of the North American bottling operations of Coca-Cola Enterprises (CCE), announced in February 2010, and consummated recently. The deal also provides Dr Pepper Snapple with the option to sell Squirt, Canada Dry, Schweppes and Cactus Cooler, which were formerly sold by the bottler, in certain U.S. territories where it has a distribution footprint.
The addition of non-Coke brands, such as Dr Pepper and Diet Dr Pepper will increase the array of choices to Coke’s new high-tech Freestyle machine (fountain drink dispenser) that is expanding gradually. Freestyle is a touch screen technology, which allures customers with its more than 100 flavors, allowing them to fix their drinks as per personal preferences.
Dr Pepper Snapple’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock remains Neutral.
Overall, we believe that the distribution right will be potent enough to take the Coke a step further, thereby gaining market share, increasing sales volume and winning consumer loyalty.
Coca-Cola’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Our long-term recommendation for the stock remains Neutral.
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
Zacks Investment Research
