Dr Pepper Snapple Group
Consumer Goods | United States
WSD Target Price
Annualized Return Since Publication
Target Equity Value (Δ)
Source: Bloomberg end of day market data; not adjusted for dividends (December 8, 2017).
Returns assume a short investment position on the date that WSD Capital Management published its thesis, and an exit on the date that the WSD Target Price is realized.
Returns do not reflect any taxes, fees or dividend and interest expenses related to short sales.
The returns are hypothetical and do not reflect the actual results of WSD Capital Management’s investment activities, nor is it necessarily indicative of future results of WSD Capital Management’s investment activities.
Dr Pepper Snapple Group (“Dr Pepper Snapple”) is a leading producer of flavored beverages in North America and the Caribbean. In addition to its flagship Dr Pepper and Snapple brands, the company’s portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Peñafiel, Rose's, Schweppes, Squirt and Sunkist soda.
WSD Capital Management announced its short position in Dr Pepper Snapple in October 2016. While the company has been successful in mitigating the challenges of the ongoing decline in carbonated soda consumption, we believe market forces have caught up with the company in pressuring management to execute initiatives that will result in the destruction of significant shareholder value.
Dr Pepper Snapple CFO Marty Ellen noted in 2015 that the company was comfortable partnering with other beverage makers, but "to acquire them would be just too expensive." In November 2016, the company agreed to acquire Bai Brands, a maker of fruit-flavored and antioxidant-infused beverages, for $1.7 billion in a bid to decrease its heavy dependence on low-growth carbonates.
This appears to have been an exceedingly defensive transaction at a rich multiple since any potential Bai Brands sale to a competitor posed a strong risk of material negative impact on Dr Pepper Snapple's top line in the event that a sale would trigger a loss of distribution of Bai Brands products for Dr Pepper Snapple. We expect the Bai Brands acquisition to fall short of management’s projections and seriously impair shareholder value going forward.