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Apollo Global and KKR plan to pump $7bn into Keurig Dr Pepper as the beverages group turns to the private capital giants to help it fend off an activist investor challenge sparked by a poorly received acquisition.
The buyout groups’ capital infusion, announced on Monday, is intended to support KDP’s €15.7bn purchase of European coffee maker JDE Peet’s, after which the company plans to split into two separate companies focused on fizzy beverages and coffee drinks, respectively.
The investment into KDP comes after shareholders panned its acquisition of JDE Peet’s in August, which promptly sent its stock tumbling by a quarter and drew the interest of activist hedge fund Starboard Value.
Investors have argued that the merger and ensuing break-up plan will add too much debt to KDP’s balance sheet and does not fit strategically. Starboard had built a stake of roughly $270mn, or 1 per cent, in the aftermath of the JDE Peet’s deal, according to people familiar with the matter.
Apollo and KKR’s financing is aimed at deleveraging KDP’s balance sheet and giving shareholders confidence in the the merger and subsequent split.
The investment comes as private capital groups such as KKR, once known on Wall Street as “barbarians” seeking to challenge large companies, have become a refuge for executives under activist challenges.
This year, KKR acted as a “white knight” to Henry Schein, pumping $250mn into the healthcare company as it fended off a challenge from activist fund Ananym Capital Management. In 2021, it invested $500mn into software group Box to alleviate pressure from shareholders.
The KDP capital injection comes as private capital groups push to originate large private loans to fuel their fast-growing insurance operations, an area where Apollo has been a pioneer.
In 2020, Apollo was part of a consortium that helped Airbnb raise $1bn of senior debt as it battled to survive the pandemic. That year Apollo also invested in travel bookings group Expedia. It has recently struck large financings for Anheuser-Busch InBev, Intel and Air France-KLM.
Apollo and KKR’s insurance operations will fund a significant piece of their investment into KDP.
Monday’s financing deal is divided into two parts. It includes a $4bn joint venture minority investment into the coffee business’s manufacturing assets such as its single-serve Kering pods. KDP’s beverages unit will also receive $3bn in preferred debt, which can be converted to equity in certain circumstances, according to an investor presentation published by KDP.
KDP will remain the majority owner of the manufacturing business, and has kept the option to repurchase Apollo and KKR’s stakes after eight years. The deal is structured to improve KDP’s debt ratios and address concerns over its leverage.
KDP’s stock fell sharply after announcing the deal with JDE Peet’s in August, leaving an opening for activist investor Starboard to buy shares.
Part of the thinking behind the new investment from Apollo and KKR is to fend off Starboard and any other potential activists from pushing for changes at the company, according to two people familiar with the matter.
KDP first looked to raise financing in early September before Starboard contacted the company, according to one person familiar with the matter.
Starboard did not immediately respond to request for comment.
KDP also announced on Monday that it would seek a new chief executive for its coffee subsidiary, breaking from a plan announced in August. Current chief executive Tim Cofer will lead the standalone beverages unit.
Shares in KDP jumped 10 per cent in early trading, pushing the company’s stock to almost $30 a share.
