Posted: May 10th, 2018
By: Andrew Homer
The pace and size of mergers and acquisitions in the United States have accelerated in the past few years. It is predicted this momentum will continue into 2018. Global mergers and acquisitions announced so far this year have surpassed a value of $450 billion. Earlier this year, JAB Holdings Company (JAB), a German consumer group, announced it will purchase Dr. Pepper Snapple Group (Dr. Pepper) for $18.7 billion and merge it with its Keurig Green Mountain coffee (Keurig). This is the largest acquisition of a soft drink company.
JAB tries to stay out of the public spotlight, but with recent large acquisitions, this has proven difficult. It is reported that the family behind the consumer conglomerate requires its members to take a vow at the age of 18 not to speak publicly about the family business. JAB purchased Keurig in 2016 for $14 billion and has focused on coffee related industries by later acquiring Krispy Kreme and Panera Bread. JAB began the hot drink journey in 2012 when it purchased Peet’s Coffee & Tea for $974 million. As a result, JAB has created rivalries with companies like Starbucks and Nestlé. A shift into the soft drink market shows JAB’s intent to expand this list to companies like Coca-Cola and PepsiCo.
The exact strategy JAB intends to use Dr. Pepper for is not well known, likely due to their secretive tactics. However, the proposed deal is known. JAB plans to pay Dr. Pepper shareholders a special cash dividend of $103.75 and merge Dr. Pepper with Keurig, a privately held company, naming the new company Keurig Dr. Pepper. Not all shareholders as happy with this deal.
On March 28, 2018, two pension funds filed a lawsuit against Dr. Pepper to challenge the January 19, 2018 deal with JAB. The plaintiffs, in this case, argue that Dr. Pepper allowed the deal to prevent shareholders from appraising the deal. The funds also argue that the Board of Directors breached its fiduciary duties when it mislead investors through its disclosures. There are three other shareholder led suits arguing this same claim.
The pension funds contend that Dr. Pepper misrepresented the deal when it asked shareholders to vote on an amendment to the company’s charter. This amendment would expand the number of outstanding shares. The funds argue the shareholders should have been asked to vote on the merger agreement. Their complaint stated that “[t]he deal has been structured in a way only a contortionist can appreciate, in order to deny stockholders their rights.” The funds argue that this structure is to hide the fact that this agreement is a simple corporate merger. If it was a simple corporate merger, the special cash dividend of $103.75 would trigger Delaware’s appraisal statute. The funds are asking the court to enjoin the deal until appraisal rights are provided.
As the United States sees more mergers and acquisitions this year, it is likely there will be an increase in litigation such as this one. Regardless of the decision by the Court of Chancery, companies looking to merge should take this case as a warning to ensure its shareholders are content with a dean in order to lower transaction costs.
Andrew Homer is a second-year law student at Wake Forest University School of law. He holds a Bachelor of Arts in Chemistry and Economics from Texas Christian University and a Master of Science in Financial Economics from Texas A&M University. Upon graduation, he intends to practice corporate law.