“Business Valuation for Merger –Dr Pepper Snapple & Keurig Green Mountain

to evaluate the deal”

A SUMMER PROJECT STUDY SUBMITTED IN PARTIAL FULFILLMENT

FOR THE REQUIREMENT OF THE TWO YEAR

POST GRADUATE DIPLOMA IN MANAGEMENT (2017-19)

BY

Ravindra Kumar

090/2017

LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT, DELHI

JUNE, 2018
 LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT,
DELHI

Date: 11 July 2018

CERTIFICATE

This is to certify that the present study is based on my original research work and my
indebtedness to others’ works, publications, etc. wherever cited in this study has been duly
acknowledged at appropriate places.

This work has not been submitted either in part or in full for the award of any diploma or degree
in any university/ Institute and is now being submitted for evaluation in partial fulfilment for
the requirement of the Two-year Full Time Post-Graduate Diploma in Management.

Ravindra Kumar

090/2017

Dr. Sandhya Makkar

Faculty Guide

I
 ACKNOWLEDGEMENT

I would like to acknowledge gratefully the contribution of all the people who took active part
and provided valuable support to me during the course of this project. To begin with, I would
like to offer my sincere thanks to Mr. Himanshu Jain (Managing Director) for giving me the
opportunity to do my summer internship at ARC Financial Services Pvt. Ltd. Without his
guidance, support and valuable inputs during the internship, the project would not have been
accomplished.

My heartfelt gratitude also goes to the entire workforce for their cooperation and willingness
to answer all my queries and provide valuable assistance.

I also sincerely thank Dr. Sandhya Makkar my faculty mentor at LBSIM who provided valuable
expertise and inputs, shared her rich experience and helped me script the exact requisites.

II
INTERNSHIP CERTIFICATE

III
 OBJECTIVE OF THE PROJECT

The objective of the project was to do a detailed business valuation of Dr Pepper Snapple Group
& the combined entity Keurig Dr Pepper to evaluate the deal for the merger. It included study
of the company along with sectorial analysis, company valuation and future projections.

IV
 TABLE OF CONTENTS

PROJECT CERTIFICATE I

ACKNOWLEDGEMENT II

INTERNSHIP CERTIFICATE III

OBJECTIVE OF PROJECT IV
EXECUTIVE SUMMARY .3

INTRODUCTION ..................................................................................................................... 4

Range of Activities ................................................................................................................ 5

Types of Mergers and Acquisitions ....................................................................................... 8
Reasons to Gain from Mergers and Acquisitions .................................................................. 8
Identifying Target Firms ...................................................................................................... 10
Global Merger & Acquisition .............................................................................................. 10
LITERATURE REVIEW ........................................................................................................ 11

APPROACH FOR PROJECT.................................................................................................. 14

VALUATION METHODS ...................................................................................................... 15

DCF VALUATION ............................................................................................................. 15

Steps to calculate Discounting FCFF ................................................................................... 16
Steps to calculate Discounting FCFE: ................................................................................. 16
TRADING COMPS ............................................................................................................. 17
PROJECTIONS/ FORECASTING ...................................................................................... 17
FORECASTING TECHNIQUES ........................................................................................ 18
REVENUE PROJECTIONS ................................................................................................ 19
SELECTION OF COMPARABLE FIRMS ........................................................................ 20
SHOULD GEOGRAPHY BE SAME OF COMPARABLE FIRMS? ................................ 20
ECONOMIC PROFIT BASED VALUATION ................................................................... 21
SOURCE OF INFORMATION ............................................................................................... 22

Print Information .................................................................................................................. 22

Television and Radio Media ................................................................................................ 22
Online Information............................................................................................................... 22
KEURIG Dr PEPPER – M&A DEAL ..................................................................................... 23

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 Compelling Value for Shareholders..................................................................................... 23
Keurig Performance Update ................................................................................................ 24
Transaction Details .............................................................................................................. 24
Management and Governance.............................................................................................. 25
Advisors ............................................................................................................................... 25
SECTORIAL ANALYSIS – BEVERAGE INDUSTRY ........................................................ 27

COMPETITIVE INSIGHTS ................................................................................................ 29

FOOD AND BEVERAGE INDUSTRY TRENDS ............................................................. 30
COMPANY BACKGROUND ................................................................................................ 31

Development and Expansion ............................................................................................... 31

COMPETITIVE BENCHMARKING ..................................................................................... 33

TRADING COMPS (INDUSTRY VALUATION)............................................................. 34

COMPANY VALUATION – Dr PEPPER & SNAPPLE GROUP ..................................... 55
DCF Valuation: .................................................................................................................... 55
COMBINED ENTITY ANALYSIS – KDP ............................................................................ 56

KEURIG GREEN MOUNTAIN ......................................................................................... 56

DR PEPPER & SNAPPLE GROUP .................................................................................... 56
COMBINING TWO INDUSTRY LEADERS .................................................................... 56
TRANSACTION COMPS ................................................................................................... 57
ANALYST RATINGS............................................................................................................. 62

RESULT .................................................................................................................................. 63

FOOTBALL FIELD ............................................................................................................ 63

CONCLUSION ........................................................................................................................ 64

REFERENCES ........................................................................................................................ 65

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 EXECUTIVE SUMMARY

The report presents an in-depth analysis of Keurig Green Mountain & Dr Pepper & Snapple
Group merger, analysis on past and current financial statements and projections based on
underlying assumptions specifying the rationale behind so.

The report has many aspects wherein initially, DCF valuation is carried out to analyze the
historical trends and performance of the companies assigned and to predict the per share value.
For comparison with the industry, 15 companies were analyzed in viz Conagra Brands Inc.,
Campbell Soup Company, General Mills Inc, Hormel Foods Corporation, The J.M. Smucker
Company, McCormick & Company, The Coca-Cola Company, Danone, Hershey Co, Kellogg
Co, Kraft Heinz Co, Mondelez International Inc, PepsiCo Inc, Nestle SA and Unilever NV.
These companies have the major market share in their respective sectors.

Post analysis, the projection of financial statements has been done and Balance sheet, Income
statement & cash flow statements for next four years (FY 2019- 22) have been formulated
keeping into consideration each and every aspect by going through the annual reports of past
couple of years and their future guidance.

The assigned companies were valued based on metrics viz, Income-based approach
(Discounted Cash Flow Analysis) and Relative Valuation.

Based on the above valuation methods, a Comprehensive Financial Model was made in the
Microsoft Excel and these metrics were assigned appropriate weights to arrive at a valuation
range of each company. This calculated range acts as an Intrinsic Value of the company helps
us to estimate the valuation of the combined entity i.e. whether it was overpriced, underpriced
or fairly valued.

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 INTRODUCTION

Business valuation is the way toward deciding the financial estimation of a business or
organization. A business valuation can be utilized to decide the reasonable estimation of a
business for an assortment of reasons, including deal esteem, setting up accomplice
proprietorship, and separation procedures. In many cases, proprietors will swing to proficient
business valuators for a target gauge of the estimation of the business.

Business valuation is ordinarily assessed when an organization is hoping to offer all or a part
of its tasks or hoping to converge with or obtain another organization. The valuation of a
business is the way toward deciding the present worth of a business, utilizing target measures,
and assessing all parts of the business. A business valuation may incorporate an examination
of the organization's administration, its capital structure, its future income prospects, or the
market estimation of its advantages.

There are numerous motivations to have a cutting-edge business valuation. For instance:

•You may need to offer the business because of retirement, wellbeing, separate, or for family
reasons.

•You may require obligation or value financing for extension or because of income issues.
Potential agents or financial specialists will need to see that the business has adequate worth.

•You might include investors (or at least one investors may wish a buyout). For this situation,
share esteem should be resolved.

Despite the reason, how much your business is worth relies upon numerous elements, from the
present condition of the economy through your business' asset report. On the off chance that
for instance, comparative organizations in your general vicinity have as of late sold, the
estimation of your business will be resolved in huge part by the offering cost of the past deals.

The field of business valuation envelops a wide cluster of fields and strategies. The devices and
strategies utilized for valuation can change among evaluators, organizations, and businesses.
Regular ways to deal with business valuation incorporate an audit of money related
proclamations, marking down income models, and comparative organization correlations.

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Business esteem is extremely a normal value the business would offer for. The genuine cost
may shift a considerable amount contingent upon who decides the business esteem. Think about
a purchaser who needs the business now since it fits essential way of life objectives to a
purchaser that buys a wage stream at the most minimal value conceivable. The offering cost
likewise relies upon how the business deal is taken care of. Complexity a very much led
business advertising effort and a "fire deal".

While mergers and acquisitions (M and A) and demerger action all through the world has died
down, start in 2008, in the unrest of the worldwide money related market emergency and
solidifying up of credit markets it remains a piece of business tasks for companies. Mergers
and acquisitions incorporate an extensive variety of exercises where one organization
affiliating with another firm. These associations incorporate joint endeavors, permitting,
diversifying, turn offs, value cut outs, following stocks, rebuilding, organizations together,
divestitures, utilized buyouts, administration buyouts and different speculations.

Range of Activities
A joint wander is the formation of a different substance from the support of at least two different
associations one of which might be an administration unit. Each gathering conveys a comment
joint wander, for example, capital, promoting channels, administrative ability, mechanical
know-how, licenses, or access to the market of a nation. For instance, China requires remote
domiciled enterprises to go into a joint wander with a Chinese firm without any than forty-nine
for every penny of the proprietorship enthusiasm for request to work together in China.

Authorizing is the place one organization (licensor) permits another firm (licensee) to deliver
an item, or offer an administration, by means of a mystery formula or patent that gives the data.
The licensor gets sovereignties from the licensee with little venture.

Establishment assertions are a variety of permitting where the franchisor (parent firm) offers
rights to another firm (franchisee) to utilize a generally known brand name, administration
works on, preparing, pooled promoting and secured topographical zone. For example,
McDonald's (burger junk food chain) is one of the world's most broad establishments spoke to
in relatively every nation on the planet with close to 30,000 eateries. Like authorizing,
establishments empower the parent to grow quickly monitoring on capital and teaching an
administration and entrepreneurial workforce.

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Spinoffs happen when a parent organization made up of a few organizations makes (on the off
chance that it doesn't as of now exist) a different backup and issues partakes in that auxiliary
to its investors on an ace rata premise with the end goal that the parent firm (now short the
auxiliary) and the recently isolated backup are free remain solitary companies. Each firm has
its own particular offers, the one of a kind top managerial staff, and distinctive administration.
This is a sort of a demerger. The point of a spinoff is to free the parent of a portion that has a
bothersome characteristic (for example, high hazard, critical trade consume rate or out a
diverting non-center line of business.

Value carveouts are another type of demerger yet in a fractional sense. The fragment that is to
experience a value carveout is made to be its own different legitimate element. This partnership
is at first entirely claimed by the parent. At that point some portion of the offers, regularly
around twenty for every penny, are sold to general society in various nation securities
exchanges. The backup turns out to be halfway possessed however stays under control of the
parent. The reason for such an exchange is to raise money for the parent, empowering the
auxiliary to be fiscally dissected with a sought after a high valuation, building up access to
capital markets for future financing needs, and encouraging the administration to be presented
execution-based pay contracts fixing to the stock value along these lines diminishing the
organization issue.

Following stock is a security issued by the parent firm that takes after the execution, incomes
and profit, of a division of the parent. Generally following stock is made for high development
(and expected superior) divisions. The directors and some of the time different workers of the
division with following stock may take part in its proprietorship and have a motivating force
to add to the accomplishment of superior in the following stock.

Rebuilding as a rule happens in the repercussions of a merger or securing. In any case,

rebuilding can occur rather than or even keep a merger or procurement. Types of rebuilding
where plants are shut and resources are shed are likewise a technique for demerging
components of the association.

Collusions and different associations can be casual connections between and among firms, for
instance, extraordinary aircraft transporters with various, yet reciprocal, course structure going
into a promoting union where they code-share their flights. For explorers flying from Europe
toward the west shore of South America where the European aircraft bearer has the plane that
crosses the Atlantic Ocean though the South American carrier transporter transports the traveler

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over the landmass of South America toward the west drift. Collusions require to a lesser extent
an asset duty, can be dropped whenever with negligible expenses (or possibly of short
determined term), may go around government forbiddances on cross-outskirt mergers, and
would more be able to promptly adjust to changing economic situations.

System connections have components of authorizing and unions. An outline of a system

relationship is the Visa keeping money arrange. Singular banks have joined this system
characterized by the treatment of charge and credit exchanges, credit fuming shipper store
records, expenses and exchanging of costs and incomes inside the system that traverses the
globe. The push of system connections is to grow the topographical reach of the individual
individuals and to serve customers in all sides of the earth.

Divestitures are a general sort of demerger, one case being a spinoff, where the parent is
emptying a past procurement or is freeing itself of an undesirable part. The divestiture might
be an auction of a going concern backup, the offer of advantages or even the shutting down of
an unfruitful, unmarketable activity.

Utilized buyouts (LBOs) are characterized as the buy of a firm utilizing a high measure of
obligation proportionate to the aggregate resource esteem. The obligation might be specifically
used to procure partakes in the objective firm however typically is used to get money to trade
for the controlling enthusiasm of stock. Favorable position of the now profoundly levered
joined firm is that it bonds the supervisors to endeavor towards more noteworthy proficiency
and viability to meet the substantial weight of obligation commitments. Besides, the lifted
obligation proportion gives a characteristic resistance to an ensuing merger offer to gain the
joined organization.

Administration buyouts (MBOs) are a kind of utilized buyout whereby it is the enterprise's own
particular best chiefs who are starting a securing offer, with the utilization of an amazingly
abnormal state of obligation financing, to take control of the organization that they work for.
This condition radiates worries of the organization connection amongst administrators and
investors. That is a low-value offer is useful to the administrators (who legitimately ought to
serve the investors) and unfavorable to the investors and the other way around.

A speculation is the premise of a merger or obtaining. The speculation must be a positive net
present an incentive from a reduced income strategy point of view or conceivably a possibly
gainful wander from the perspective of vital basic leadership whereby the organization is going
up against an alternative, for example, to venture into another line of business or enter an

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alternate topographical market. Why a firm want to wind up greater through gained (outer)
development rather than natural (interior) development involves discuss for proficient directors
and scholastic researchers.

Types of Mergers and Acquisitions

Inside the scope of mergers and acquisitions exercises is the arrangement of the kind of merger.
There are four classes: even, vertical, combination and congeneric.

Flat mergers are meant by the procurement of a comparative firm with the end goal that the
joined firm is practically identical in business movement obviously greater in estimate. For
example, a vodka bottler getting another vodka bottler is a flat merger.

Vertical mergers come to pass when the acquirer firm buys the objective organization either
upstream or downstream in the store network causing more prominent vertical joining.
Proceeding with the case of the vodka bottler, vertical mergers would purchase a potato
cultivate. Potatoes are one of the fixings (crude materials) in the creation of vodka. This
obtaining of a provider is upstream vertical joining. While the vodka bottler purchasing a retail
alcohol store (client) outlines downstream vertical joining.

Aggregate mergers occur when organizations obtain another substance in a disconnected

business. The vodka bottler getting a steel industrial facility organization exhibits an aggregate
merger.

Congeneric mergers are those that join firms that are united in-nature. This sort of merger has
components of the other three merger composes. The vodka bottler getting a distillery embodies
a congeneric merger.

Reasons to Gain from Mergers and Acquisitions

Development through mergers and acquisitions produces increases to the effective bidder. The
wellspring of these additions is the basis to clarify why firms consolidate. Reasons why
partnerships get different enterprises run the extent and incorporate key objectives, economies
of scale and degree, advertise control, rebuilding, mechanical, broadening, political and
engaging against the opposition.

Key moving mergers of acquirers might be for things, for example, getting administrative
ability; leaving a business portion whose items are being commoditized to that with claim to

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fame items; and moving from an overcapacity industry to what has a requirement for expanded
creation.

Economies of scale happen when the normal cost per unit of generation decreases as a result
of a more noteworthy volume being created. This may come about because of cutting overhead
costs, joined innovative work units, less duplication of offices, anchoring value rebates because
of bigger buy orders, more noteworthy haggling power in transaction bargains, receiving a
more proficient creation process legitimate just when enormous in estimate.

Economies of degree happen when the firm offers extra corresponding items, a widened
product offering, and can give one-quit shopping to clients.

Market control is expanded by an acquirer in a mergers and acquisitions bargain through an

expanded piece of the overall industry, access to new markets, and vertical incorporation.

Rebuilding in anticipation of mergers or ensuing to a culminated merger offer can take

numerous structures. Exercises, for example, moving to nearby assembling, bolting up
providers for long haul acquirement, disposing of overabundance limit, cutting expenses, and
compensating representatives with a reward for praiseworthy work delineate increases from
rebuilding. Innovative reasons making merger achievement might be made out of including a
patent, or copyright, expanding mechanical capacities, entering another mechanical field, and
building up innovative work capacities.

Enhancement, particularly in an aggregate merger, can be a monetary or working collaboration.

Broadening comes to fruition through an augmented worldwide market, development of
product offering, chance lessening bringing down the cost of capital and sourcing from a more
extensive gathering of providers. Political explanations behind mergers and acquisitions are as
various as all the political wards and going with laws on the planet. Cases of political reasons
incorporate controlling around taxes, staying away from high duties, looking for a sheltered
business condition, and getting to business sectors.

In the nonstop fight with contenders, the favorable position originating from mergers and
acquisitions might be from keeping a contender from getting greater, securing the crude
material sources, grabbing up the prime land areas, purchasing your rival and in this manner
disposing of the opposition, and snatching clients by purchasing a contender.

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Identifying Target Firms
A few organizations are more engaging than others when a firm is settling on the choice that
they should focus to continue with a securing offer. The objective firm may have something
the bidder firm needs as it is a solid match. That is, not exclusively does the objective have
something the bidder needs yet what has procured shores up inadequacies and shortcomings of
the bidder. Investigating the monetary record of the potential target firm one is searching for a
match to reinforce the bidder firm. On the off chance that the bidder has old fashioned hardware
then a mix with an objective organization having present day gear. The acquirer firm may have
poor stock control causing over the top stock which could be all the more productively oversaw
by buying an objective with solid stock administration hones. Moreover, the bidder may have
less trustworthy brands combined with more than satisfactory creation limit. This matching
could be enhanced by joining with an organization that has solid brand acknowledgment items.
An objective company may have an expansive conveyance channels framework not completely
utilized by its own host of items. This underutilization might be cured by attaching with an
acquirer that is readier to misuse the prevalent promoting places. An extra thought incorporates
the capital structure, that is, a firm with a high level of monetary use may endeavor to balance
that by converging with a firm with low obligation proportions. Other complimentary attributes
to be scanned for by acquirers are things, for example, regularity of product offering (winter
season maker combined with summer season maker), assess favorable circumstances (fir with
unused expense credits and derivations uniting firm with high duty rate), and human capital
assets (securing firm with rich administrative, expert and specialties work force).

Global Merger & Acquisition

Fig. World M&A in 2018, Source: http://graphics.wsj.com/investment-banking-scorecard0/

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 LITERATURE REVIEW

Mergers and procurement are generally distinguished as three sorts on the planet showcase,
they are vertical joining where two organizations in various of production network consolidate,
level reconciliation where two same industry organizations combine and enhancement where
two organizations of two distinctive industry combine (The Economist, 2006) (Morrison and
Floyd, 2000). The merger is only the mix of two firms where one survives and the other lose
its corporate presence. The organization which is gaining will pay for every one of the benefits
and liabilities of the obtained organization (Varma, 1997).

Mergers and acquisitions are the organizations for the most part focusing on the globalization
and changing the market condition. This is the speediest and more viable approach to extend
the business into the new market in the new nation (Papadakis, 2005). As indicated by the
creator, one organization thinks to build up its business all-inclusive the main route is to go for
mergers and securing and on account of Tata Motors, it is known as the engine organization in
India yet after the procurement of the Jaguar (UK organization) it is known to everywhere
throughout the world that Indian organization first time in the history gained the British
organization. As indicated by the creator, through the Mergers and Acquisition, just a single
organization can make a picture on the planet showcase and build up its business. As per
Ravenscraft and Scherer (1989), the gainfulness of target organizations is a decrease after a
procurement. Rovit et al. (2004) demonstrate their contention after profound examinations of
724 United States-based firms over a multiyear of research from 1986 to 2001, that the majority
of the effective organizations making long haul investors incentive to be visit solid acquirers
that keep up a steady program of exchange all through financial busts and blast. As indicated
by the creator, the mergers and acquisitions are not generally achievement in some cases it
brings about misfortune to both the getting organization and the procured organization.
Numerous kinds of research had demonstrated that the open door for mergers to come up short
is high just amid the mix procedure (Simpson, 2000. Referred to in Nguyen and Kleiner, 2003).
They contend that uncalled for administration, procedure, wasteful correspondence, no
unmistakable vision about the organization and the way of life contrast is the main explanation
behind the disappointment of the Mergers and Acquisitions. As indicated by Schuler and
Jackson 2001), the disappointment for the M&A are distinguished as lack of foresight, social
conflict, changing ecological conditions, distant desires, poor correspondence, poor
administration, ability misfortune, incorporation challenges and so on. As per Flowler and

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Schmidt (1998), the best way to globalize the business, to make a decent benefit and
development is the Mergers and Acquisition. As per Bellou (2007), the vast majority of the
mergers wind up in disappointment in the worldwide market. Counts demonstrate that half to
80% of the mergers and procurement are a disappointment since they are performing low than
the normal as indicated by various industry and measures. There are numerous cases can
demonstrate the historical backdrop of disappointment of mergers and obtaining. The Ford
engines obtained Jaguar before Tata however it was anything but a gainful procurement so the
Ford engines sold it to the Tata engines yet now Tata engines are attempting to pay the
extension credit taken to purchase the Jaguar organization (Businessweek, 2010).

As per Fraclicx and Bolster (1997), the fundamental factor in manifesting the deciding moment
the merger condition is the way of life. Besides, culture is depicted as a remarkable answer for
both inner and outside issues (Schein, 1985a. Referred to in Schraeder and self, 2003). The
expression "Culture Clash" will depict the capacity of two organizations, for example, values,
missions, style and methods of insight. These are every one of the variables thought to be risky
elements when two organizations choose to consolidate (Bijilsma-Frankema, 2001; Cited in
Nguyen and Kleiner, 2003). As per Beer et al 91993), the organization which is going for
mergers and obtaining need to change the way of life to fit the procedure. As indicated by
Drennan (1992), each association has got its own way of life. The Larson and Gonedes (1969)
demonstrate hold that the trade proportion will be dictated by each association's evaluation of
the post-merger value/profit numerous and hypothesizes that each firm requires that its
proportionate cost per share be at any rate kept up because of the merger. As indicated by the
creator, they built up a model to know the cost or income which will demonstrate the benefit
and misfortune in that model. With a specific end goal to check whether the M&A really
expands the market estimation of the organizations so Conn and Nielson (1997) built up the
Larson and Gonedes, demonstrate.

With a specific end goal to cover the offer value development, collaboration and cost decreases,
a large portion of the organizations including the banks are reporting for prompt pre-merger
systems (Lowe, 1998). The ongoing examinations contended that there is a distinction between
the procured and getting workers. The examination demonstrates that the procured workers are
the most influenced individuals in the mergers and obtaining (Panchal and Cartwright, 2001).
The investors' esteem not just relies upon the market valuation of the objective firm yet
additionally relies upon the real securing value that the gaining organization pays contrasted

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and the offering organization's income commitment to the joined organization (Rappaport,
1979).

In the 1960's the majority of the acquisitions will be made on the bundle of securities yet now
a large portion of the acquisitions are finished with the money (Rappaport, 1979). As per Gupta
and Roos (2001), in the Mergers and Acquisition process, just the impalpable resources are
expected as the key components that perform behind the merger and obtaining. Moreover, this
is a decent chance to make some procedure including the exchange of learning, innovation
presentation, key usage and this is a one of a kind ordeal to learn about the outside worldwide
market. As per Fishbrook (2007), cross-outskirt merger and securing exercises are expanded in
the present worldwide world.

As per Granlund (2003), the Mergers and Acquisition are particularly centered around the
investigation of understanding the human and social angles and it is once in a while been broke
down from the administration bookkeeping perspective. As per Camara and Renjen (2004), if
just the senior chief thinks about the objective of the Mergers and Acquisition won't influence
the Merger and Acquisition to process achievement, it should be conveyed to the lower level
directors and furthermore it should be imparted to the lower levels too on the grounds that
fruitful merger is beginning with an unmistakable comprehension of the merger reason. As per
Camara and Renien (2004), the fruitful merger needs to propel how the consolidated
organization will perform uniquely in contrast to the individual organization take a shot at its
own. As per the creator, the objective of the Merger and Acquisition should be imparted to all
levels of administration since poor correspondence is the primary purpose behind the
disappointment of Merger and Acquisition. As indicated by the creator, the principle purpose
behind the merger is to roll out a few improvements. By rolling out improvements just the new
blended organization can give better administration great value so the assets being very much
utilized and changing to new frameworks from the key frameworks (Hackett, 1996). As per the
creator, as it is being examined in the past passage that the fundamental purposes behind the
Merger and Acquisition are to build the market estimation of the offer and increment investor
esteem by cutting expenses and enhance the administrations (Nguyen and Kleiner, 2003). As
indicated by Nguyen and Kleiner (2003), both the organization's investor will appreciate the
"merger of equivalents" where quality and abilities will be shared similarly between the
organization's investors.

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 APPROACH FOR PROJECT

Learning of the business valuation process step by step and reasons behind Mergers &
Acquisition. Read various analyst reports to understand the rationale behind valuations.
Build a basic financial model in excel.
Selection of valuation methods.
Research about the non-alcoholic beverage industry and its scope in the market.
Analyse target and acquirer company
Business valuation of Dr Pepper & Snapple Group and combined entity Keurig Green
Mountain.
Analyse result with the help of a football field

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 VALUATION METHODS
There are two types of methods for valuating any company:

Going Concern
Asset-based valuation

Here are the complete valuation techniques used in industry:

Methods

Asset Based
Going Concern
Valuation

Relative Valuation
(Trading Comps, Sum of the parts Based on asset's
Transaction Income Approach
valuation (SOTP) liquidation values
Comps)

Discounted Cash Discounted

Flow Economic Profit

Discounting
Discounting FCFF Discounting FCFE
Dividends

DCF VALUATION:
Present Value of future cash flows we are expecting to generate from assets/business
over its entire life
The market price of the stock of the company is not the intrinsic value of the company. It may
be more than, less than or equal to the intrinsic value of the company as one is price and other
value and both may be different.

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 There is no surety that the price of the listed stock will come around its value. It may
and may not. Longer your investment horizon, greater are the chances of price coming
around the value of the stock but no surety.

Steps to calculate Discounting FCFF:

Step 1. Project FCFF
𝐹𝐹𝐹𝐹 = 𝐹𝐹𝐹𝐹 − 𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹 ± 𝐹𝐹𝐹 𝐹𝐹𝐹ℎ 𝐹ℎ 𝐹𝐹𝐹𝐹𝐹
𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 − 𝐹𝐹𝐹𝐹𝐹
± 𝐹ℎ 𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹

Step 2. Calculate Weighted Average Cost of Capital (WACC)

𝐹𝐹𝐹𝐹 = 𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹 𝐹𝐹 ∗ (1 − 𝐹𝐹𝐹 𝐹𝐹𝐹𝐹) ∗
𝐹𝐹𝐹𝐹ℎ 𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹
+ (𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹 𝐹𝐹 + 𝐹𝐹𝐹𝐹 𝐹 ∗ 𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹)
∗ 𝐹𝐹𝐹𝐹ℎ 𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹

Step 3. Calculate Terminal Value of Firm

Step 4. Calculate Present Value of FCFF and Terminal Value
Step 5. PV of FCFF + PV of TV = Enterprise Value
Step 6. Deduct Net Debt Value = DCF value of Equity

𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹

= 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹 + 𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹
𝐹𝐹𝐹𝐹𝐹
+ 𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹 − 𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹 𝐹𝐹𝐹𝐹 − 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹
𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹

Steps to calculate Discounting FCFE:

Step 1. Project FCFE
𝐹𝐹𝐹𝐹 = 𝐹𝐹𝐹𝐹 − 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 ∗ (1 − 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹 𝐹𝐹𝐹𝐹) ±
𝐹𝐹𝐹 𝐹ℎ 𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹
Step 2. Calculate cost of Equity (Ke) Step
3. Calculate TV value of Equity Step 4.
Calculate PV of FCFE and TV
Step 5. PV of FCFE + PV of TV = DCF value of Equity

𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹

= 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹 𝐹𝐹 𝐹𝐹𝐹𝐹 + 𝐹𝐹 𝐹𝐹
𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹
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+ 𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹 − 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹

17 | P a g e
TRADING COMPS:
Finding similar companies to compare: this is the hardest part of relative valuation as
is difficult to find exactly the same companies to compare. No two companies are
identical. Even if they are operating in a similar business, they might be different in
terms of growth, risk, return, etc.
 Standardising the price of companies: In this step, we calculate the standardised price
by converting absolute prices into the multiples. This process is of paramount
importance as we can’t compare the price of one company with other companies unless
they are standardised.

Detailed step by step approach:

Step 1. Selection of comparable companies

 The companies we are comparing should be similar in terms of fundamental
variables (say growth, risk, cash pay-out etc.)
Step 2. Calculate Value (Numerator): Equity, Firm
 Equity value is simply the price at which stock is trading
 Firm value(EV) = Equity value + All source of capital employed in the business
other than common equity
Step 3. Calculate Variables: Sales, EBIT, EBITDA, EPS, No of users, Cash Flows etc.
Step 4. Calculate Multiples = Step 2/Step 3
Step 5. Calculate Industry Average
Step 6. Compare company multiple with industry multiple
Step 7. Valuation of company
 Industry multiples calculated in step 5 are also used as a benchmark to value
private company/ public company

PROJECTIONS/ FORECASTING:
Forecasting is the use of historical data to determine the direction of future trends. Businesses
utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses
for an upcoming period of time. This is typically based on the projected demand for the goods
and services they offer.

Investors utilize forecasting to determine if events affecting a company, such as sales

expectations, will increase or decrease the price of shares in that company. Forecasting also

18 | P a g e
provides an important benchmark for firms, which need a long-term perspective of operations.
Stock analysts use forecasting to extrapolate how trends, such as GDP or unemployment, will
change in the coming quarter or year. The further out the forecast, the higher the chance that
the estimate will be inaccurate. Finally, statisticians utilize forecasting in any situation that
requires the use of forecasting. For instance, data may be collected regarding the impact of
customer satisfaction by changing business hours or the productivity of employees upon
changing certain work conditions.

FORECASTING TECHNIQUES:
Stock analysts use various forecasting methods to determine how a stock's price will move in
the future. They might look at revenue and compare it to economic indicators. Changes to
financial or statistical data are observed to determine the relationship between multiple
variables. These relationships may be based on the passage of time or the occurrence of specific
events. For example, a sales forecast may be based upon a specific period (the passage of the
next 12 months) or the occurrence of an event (the purchase of a competitor’s business).

We can split the forecast period into two or three phases depending upon the growth phase of
the business.

Phase I: It’s a high growth period for the company. During this period the company grows at
a rate higher than the steady growth rate of the company. Size of this period varies from 5 years
to 0 years depending on the business lifecycle of the company. For this phase, we forecast a
detailed business plan.

Phase II: During this period the company’s growth starts moderating due to increase in
competition and the size of the company. This period starts from the end of the high growth
period and ends at the start of the steady growth phase of the company. This phase usually
extends up to 5 years.

Phase III: This is a steady growth phase of the company. During this phase, the company
grows at a steady rate during its remaining life which is most of the cases extend up to infinity.
We don’t project this phase but capture the value of cash flow by calculating terminal value.
The terminal value represents the value of future cash flows generated by the company in the
years after the detailed/extended forecast period.

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REVENUE PROJECTIONS
There are two techniques to project revenue:

 Top-down approach: we first forecast industry, then share company would grab of that
projected industry
 Bottom-up approach: we build revenue projections based on likely demand of the
company’s product and services from existing customers, growth in its customer base,
the price of product and services etc.

20 | P a g e
SELECTION OF COMPARABLE FIRMS:
Comparable companies mean the companies identical to each other in terms of growth, risk,
payout. There are two approaches to identify comparable companies:

Approach 1: Selecting the companies from the same industry. The implicit assumption in this
approach is that all the companies within the same industry are identical. However, there are
following practical difficulties in this approach:

 Non-availability of enough listed players within the industry

 Hard to find identical companies

Approach 2: Rather than selecting comparable companies on an industry basis, we select them
on the basis of fundamental variable i.e. the companies which have similar fundamentals are
comparable irrespective of the industry they belong.

Approach 3: Comparing all the companies listed in the market and controlling differences in
the fundamental variables with the help of statistical technique.

Based on above approaches we have 16 companies were analyzed in viz Conagra Brands Inc.,
Campbell Soup Company, General Mills Inc, Hormel Foods Corporation, The J.M. Smucker
Company, McCormick & Company, The Coca-Cola Company, Danone, Hershey Co, Kellogg
Co, Kraft Heinz Co, Mondelez International Inc, PepsiCo Inc, Nestle SA and Unilever NV

SHOULD GEOGRAPHY BE SAME OF COMPARABLE FIRMS?

Usually, we pick comparable companies from the same geography i.e. US company is
compared with other US companies only not with European or other countries. The reason for
restraining the selection area within the geography is, there might be some difference in
fundamental characteristics of the companies due to geography. However, if the companies are
the same on the basis of fundamental then there is no harm in comparing them. For example,
if we are comparing automobile industry then comparing Indian automobile company with US
automobile company might not be a good idea due to the difference in their fundamental as
buying a car might be a necessity in US and luxury in India.

21 | P a g e
ECONOMIC PROFIT BASED VALUATION
Valuation under economic profit-based valuation model will be same as per DCF
The advantage over DCF is it gives insight into economic profit generated by the
company.
Under the technique of valuation, we discount excess return generated by the company
on its invested and to be invested capital over its entire life.
Value of operation = PV of economic profit to be earned by the company in the future
+ Book value of the investment at the starting of the projection period.

Step by Step Approach:

Step 1. Calculate invested capital at the beginning of each projected year
Step 2. Calculate NOPAT for the projected year
Step 3. Calculate ROIC
 NOPAT/Capital at beginning of the year
Step 4. Calculate economic profit
 Invested capital at beginning of the year * (ROIC – WACC)
Step 5. Discount Economic profit to PV
Step 6. Calculate TV
Step 7. Calculate the present value of terminal value calculated
Step 8. PV of economic profit = PV of economic profit (step V) + PV of the terminal
value of economic profit calculated in step 7

22 | P a g e
 SOURCE OF INFORMATION

Business data comes when all is said in done overviews, information, articles, books,
references, web indexes, and inward records that a business can use to direct the assessment of
its exercises. Such data likewise originates from companions, clients, partners, and merchants.
Distributed sources might be every day daily papers; monetary, exchange, and affiliation
magazines; databases, government insights, registries, specialized manuals, and much else.
Basically, since "data" is characterized more by setting than by content, business data is
whatever data enables a business to know its condition.

Outer data arrives in an assortment of structures from printed material to communicate reports
to online spread.

Print Information

The category of print covers not only a vast array of books and periodicals, but also includes
microfilm and microfiche, newsletters, and other subcategories. State and federal government
report also fit into this category; indeed, Lavin described the U.S. Government Printing Office
as “the largest publisher in the free world; its products can be purchased by mail, telephone or
through GPO bookstores in major cities.”

Television and Radio Media

This source of business information is perhaps the least helpful of the various external sources
available to small business owners. Programs devoted to general investment strategies and the
changing fortunes of large companies can be found, of course, but the broad-based nature of
broadcasting makes it difficult, if not impossible, to launch programs aimed at narrow niche
audiences

Online Information
Market – Bloomberg, Yahoo Finance etc., Statement of Financials, Income Statement,
Statement of Cash flows, Notes to Accounts.

23 | P a g e
 KEURIG DR PEPPER – M&A DEAL
Dr Pepper Snapple and Keurig Green Mountain to Merge, Creating a Challenger in the
Beverage Industry with a World-Class Portfolio of Iconic Brands and an Unrivaled Nationwide
Distribution Capability

Jan 29, 2018

Combined Brand Portfolio Will Have Strong Exposure to Faster Growing Beverage
Categories and an Ability to Reach Consumers Across Virtually All Retail Channels
and Points of Consumption
Dr Pepper Snapple Shareholders to Receive $103.75 Per Share in a Special Cash
Dividend and Retain 13% of the Combined Company
 KDP will have pro forma combined 2017 annual revenues of approximately $11 billion.
This combination of two iconic beverage companies joins together beloved brands Dr
Pepper, 7UP, Snapple, A&W, Mott’s and Sunkist with leading coffee brand Green
Mountain Coffee Roasters and the innovative Keurig single serve coffee system, as well
as more than 75 owned, licensed and partner brands in the Keurig system.

Larry Young, President and Chief Executive Officer of Dr Pepper Snapple, said, “This
transaction will deliver significant and immediate value to our shareholders, along with the
opportunity to participate in the long-term upside potential of our combined company and
attract new brands and beverage categories to our platform in a fast-changing industry
landscape. We are excited to combine with Keurig to build on the rich heritage and expertise
of both companies and provide the highest-quality hot and cold beverages to satisfy every
consumer throughout the day.”

Compelling Value for Shareholders

The company believes its complementary portfolio, access to high-growth segments of the
beverage industry and shareholder value-focused management team will enable it to achieve
sustained growth through continued innovation, brand consolidation opportunities and
enhanced household penetration for its leading brands.

KDP targets realizing $600 million in synergies on an annualized basis by 2021. Dr Pepper
Snapple expects to pay its first-quarter ordinary course dividend of $0.58 per share. At the close
of the transaction, the company expects to deliver an annual dividend of $0.60 per share.

24 | P a g e
The company will deliver strong cash flow generation and accelerate its deleveraging, with a
target Net Debt/EBITDA of below 3.0x within two to three years after closing. KDP anticipates
total net debt at closing to be approximately $16.6 billion and it anticipates maintaining an
investment grade rating.

Keurig Performance Update

Since becoming a private company following its acquisition by a JAB-led investor group in
March 2016, Keurig has renewed its marketing investment and improved its new brewer
innovation pipeline, which has resulted in renewed top-line volume growth, increasing U.S.
household penetration for Keurig brewers to 20%, from 17%, in the last two years. In the same
period, Keurig has added key brand partners into the Keurig system with the help of strategic
pod price reductions and value-added services. The combination of those two factors has
allowed the company to improve its pod growth from the low-single digits to mid-single digits
in the second half of the calendar year 2017.

Keurig also delivered a 14.1% annual improvement in operating income and increased its
operating margin by 710 basis points in the last two years behind significant productivity
improvement programs. The company has also strengthened its balance sheet and significantly
reduced its debt/EBITDA to 2.7x as of December 2017, from 5.5x as of March 2016, when the
company was acquired.

Transaction Details

Under the terms of the merger agreement, Dr Pepper Snapple shareholders will receive a
special cash dividend of $103.75 per share and will retain their shares in Dr Pepper Snapple.
Upon closing of the transaction, Keurig shareholders will hold 87% and Dr Pepper Snapple
shareholders will hold 13% of the combined company.

JAB Holding Company, a global investment firm with a proven track record of investing long-
term capital in global consumer brands, and its partners, will together make an equity
investment of $9 billion as part of the financing of the transaction. JAB will be investing equity
capital from JAB Holding Company as well as through JAB Consumer Fund, an investment
fund backed by a group of like-minded, long-term oriented investors. Both JAB Holding
Company and JAB Consumer Fund are overseen by three senior partners: Peter Harf, Bart
Becht and Olivier Goudet. Entities affiliated with BDT Capital Partners, a Chicago-based

25 | P a g e
merchant bank that provides long-term private capital and advice to closely held companies,
are also investing alongside JAB. Upon closing of the transaction, JAB will be the controlling
shareholder. Mondelēz International, JAB’s partner in Keurig, will hold an approximately 13-
14% stake in the combined company.

The balance of the transaction financing will be provided through financing debt commitments
from JPMorgan Chase Bank, Bank of America Merrill Lynch and Goldman Sachs. The
transaction is not subject to a financing condition and is expected to close in the second calendar
quarter of 2018, subject to the approval of Dr Pepper Snapple shareholders and the satisfaction
of customary closing conditions, including receipt of regulatory approvals.

Management and Governance

Bob Gamgort, a current chief executive officer of Keurig, will serve as a chief executive officer
of the combined company and Ozan Dokmecioglu, a current chief financial officer of Keurig,
will serve as its chief financial officer. Dr Pepper Snapple President and CEO Larry Young
intends to transition to a role on KDP’s Board of Directors to help the new management team
realize the full potential of the company. Bart Becht, of JAB, will serve as Chairman of the
company’s Board of Directors and Bob Gamgort will become an Executive Member of the
Board. Four additional directors will be appointed by JAB, two directors will be appointed by
Dr Pepper Snapple, including Mr Young, two directors will be appointed by Mondelēz
International, and two independent directors will be appointed.

Keurig and Dr Pepper Snapple will continue to operate out of their current locations and Bob
Gamgort, CEO of the combined company, will be based in Burlington, Mass. The combined
company will draw on the leadership teams of both companies, who will continue running their
respective businesses.

Advisors

Goldman Sachs & Co. LLC served as a lead financial advisor to Keurig. BDT & Company,
AFW LP, J.P. Morgan Securities LLC and Bank of America Merrill Lynch also acted as
financial advisors to Keurig with Skadden, Arps, Slate, Meagher & Flom LLP serving as legal
counsel and McDermott Will & Emery LLP serving as tax counsel. Credit Suisse served as
financial advisor to Dr Pepper Snapple and Morgan, Lewis & Bockius LLP is serving as Dr

26 | P a g e
Pepper Snapple’s legal advisor. Clifford Chance U.S. LLP is serving as legal advisor to
Mondelēz International.

27 | P a g e
 SECTORIAL ANALYSIS – BEVERAGE INDUSTRY

The worldwide non-mixed refreshment showcase estimate was esteemed at USD 967.3 billion
of every 2016. The market is foreseen to develop at an expected CAGR of 5.8% from 2017 to
2025 attributable to elements, for example, rising discretionary cashflow, populace
development, and evolving way of life. Expanding concerns with respect to stoutness and
wellbeing mindfulness are required to trigger the development of useful refreshment and
filtered water item section, while in as far as possible the interest for carbonated beverages.

The non-mixed drink industry is managed by different universal and national administrative
experts over the globe. Organizations in this industry intensely utilize assets, for example,
water and power, which are thought to be rare.

Government approaches alongside the rising societal mindfulness toward condition and vitality
preservation have brought about more stringent discharge and ecological insurance
arrangements. The Clean Water Act, The Clean Air Act, and The Resource Conservation and
Recovery Act are a few exhaustive administrative systems in the nourishment and refreshment
showcase that are proposed for condition and vitality preservation.

Developing worry toward stoutness and other medical issues is reshaping the worldwide non-
mixed drink industry. The interest for practical refreshments, for example, unwinding drinks,
caffeinated beverages, and prepared to drink espressos teas, is picking up prominence inferable
from their low-calorie substance.

Developing utilization of caffeinated drinks because of boisterous calendar, urbanization, and

rising wellbeing concerns are relied upon to drive showcase development. As indicated by the
information distributed by the Department of Economic and Social Affairs, U.S., in 2012,
around 1.5 million individuals of the total populace were added to the urban populace

28 | P a g e
consistently. About 60% of the worldwide populace will dwell in urban regions by 2022, which
is anticipated to drive the business development.

29 | P a g e
Developing populace and discretionary cashflow alongside the rising number of significant
worth situated keen purchasers are building up the general business. Expanding utilization of
takeaway items because of occupied way of life combined with quick urbanization is extending
the market. The Asia Pacific took after by Middle East and Africa are foreseen to enrol a critical
development over the conjecture time frame attributable to the nearness of rising economies,
high discretionary cashflow, and different undiscovered markets.

COMPETITIVE INSIGHTS

Item separation is a pivotal factor in this industry, which is driving the examination and
development exercises. Quickly changing innovation combined with requesting clients brings
about weight for item enlargement and new item advancement. Organizations are spending
vigorously on explore for growing new items to meet guidelines and directions forced over the
areas. Product offering extending and augmentation has been a noteworthy factor in making
progress in this industry.

On account of shopper merchandise, exchanging cost for the clients is pitiful, which implies
organizations need to draw in their clients through esteemed contributions with endeavors to
create client encounter by making a more client driven hierarchical culture. Aside from a
quality item, advancement is one of the pivotal procedures in enhancing brand
acknowledgment. Organizations working in this market are vigorously spending on special
exercises, attempting to make an exceptional brand picture that gives an aggressive edge over
others.

Makers are occupied with sending coordination to build their support in the esteem chain. Mix
of procedures from inbound coordination to after-deals administrations is required to end up
another pattern in this market. This is anticipated to prompt better quality and less exorbitant
last items, which will guarantee ideal execution and give most extreme lifetime esteem.

A portion of the organizations occupied with the extension of this industry incorporate
PepsiCo, Inc., The Coca-Cola Company, Nestle S.A., Dr Pepper Snapple Group, Inc., The
Kraft Heinz Company, Reed's, Inc., Appalachian Brewing Co., Jones Soda Co., and Molson
Coors Brewing Company.

30 | P a g e
Numerous key players, for example, PepsiCo and The Coca-Cola Company, are advancing the
web-based business channel attributable to the advancement of innovation and the reception of
cell phones. The direct and web-based business deals channels are anticipated to give greater
security to organizations by offering them elective approaches to advertise their items.

FOOD AND BEVERAGE INDUSTRY TRENDS

American sustenance inclinations are moving. The populace is winding up more wellbeing
cognizant, requesting more characteristic and natural items and expending less bundled and
intensely prepared nourishment. Shoppers are eating less meat, fat, and sugar. In spite of this
expanded spotlight on sound eating methodologies, be that as it may, interest for foods grown
from the ground has not risen. The spotlight has been more on the sort and wellspring of the
item as opposed to the amount. US purchasers are additionally worried about maintainability
and are winding up progressively ready to pay more for items from earth inviting and socially
dependable organizations. Green bundling, locally and dependably sourced materials and water
and vitality productivity are generally factors that are increasing more consideration and
request. While these can be costly to execute, the market will bear higher costs for them, and
they can give an edge by which to build piece of the overall industry. Online business and
conveyance are additionally developing in ubiquity. With such high web infiltration and
developing interest for accommodation, shoppers are progressively requesting basic supplies
and other nourishment items on the web. Administrations, for example, Amazon Fresh are
developing in number, enabling purchasers to look for crisp create without going out.

31 | P a g e
 COMPANY BACKGROUND
Dr Pepper Snapple Group, Inc. is an
incorporated brand proprietor, maker, and
wholesaler of non-mixed drinks in the United
States, Canada, and Mexico. The Company
offers seasoned carbonated and non-carbonated
sodas, prepared to-drink teas, juices, juice
beverages, and blenders.

Dr Pepper and Snapple, the lead brands of DPS,

have starting points that offer Schweppe's entrepreneurial soul. Charles Alderton, a youthful
drug specialist in Waco, Texas, designed Dr Pepper in 1885. It was served at the drugstore
where Alderton worked, and the main Dr Pepper fans requested a "Waco." The most
established soda pop in the United States, it was later named Dr Pepper, as indicated by legend,
after Dr Charles Pepper, a companion of the drugstore proprietor.

Almost 100 years after the fact, three New York-region wellbeing nourishment store
proprietors made an exceptional apple pop they named Snapple. They started offering the first
Snapple in wellbeing clubs in 1973. All through the 1970s, the organization that claimed
Snapple was known as the Unadulterated Food Corporation, later getting to be Snapple
Beverage Corp.

Development and Expansion

Cadbury Schweppes was shaped in 1969 with the merger of Cadbury and Schweppes, and over
the following three decades, the organization amassed the third biggest offer of the North
American drink showcase through a progression of vital acquisitions.

In 1982, Cadbury Schweppes obtained the Duffy-Mott Company (later known as Mott's), one
of the biggest squeezed apple processors on the planet. Through whatever remains of the 1980s,
the organization included Canada Dry, Sunkist Soda, Crush and Sun Drop.

A&W Brands, which incorporated the mark root lager and cream pop, and in addition Squirt
and Vernors, joined the portfolio in 1993.

32 | P a g e
In 1995, Cadbury Schweppes bought Dr Pepper/Seven Up, Inc. The securing brought Dr
Pepper and 7UP, alongside IBC Root Beer and the Welch's soda pop line, into the Cadbury
Schweppes family.

In 2000, Cadbury Schweppes gained Snapple Beverage Group, which incorporated the
namesake mark and additionally RC Cola, Diet Rite and Stewart's, among others.

In 2003, the four North American refreshment organizations under Cadbury Schweppes – Dr
Pepper/Seven Up, Inc., Snapple Beverage Corp., Mott's and Bebidas Mexico – were brought
together under a typical vision, business system and administration structure to wind up
Cadbury Schweppes Americas Beverages.

The organization set up its own packaging and circulation arrange in 2006, when it obtained
full responsibility for Pepper/Seven Up Bottling Group, the biggest free bottler in the U.S.
Along these lines, it obtained a few other real autonomous packaging and dispersing
organizations, including All-American Bottling Co., 7UP Bottling Co. of San Francisco and
Southeast-Atlantic Beverage Corp., Dr Pepper/7-Up Bottling Co. of the West (Reno, NV), and
Davis Bottling Co. (Dad), among others. Adding to its completed products fabricating
impression for dissemination of juices, teas, blenders and fruit purée, the bottler acquisitions
have given DPS control of almost 50% of its general volume in the U.S. what's more, guide
access to a generous lion's share of the U.S. populace.

In 2017, DPS finished the obtaining of Bai Brands LLC, including its entire line-up of better
for you, cancer prevention agent imbued improved waters, carbonated enhanced waters,
coconut water and premium teas to the portfolio.

Fig. Product Diversification – Dr Pepper Snapple Group, Source:

http://investor.drpeppersnapplegroup.com/annual-reports

33 | P a g e
 COMPETITIVE BENCHMARKING

By comparing all the companies listed in the market and controlling differences in the
fundamental variables with the help of statistical technique we have selected the following 15
companies:

1. Conagra Brands Inc

2. Campbell Soup Company
3. General Mills Inc
4. Hormel Foods Corporation
5. The J.M. Smucker Company
6. McCormick & Company
7. The Coca-Cola Company
8. Danone
9. Hershey Co
10. Kellogg Co
11. Kraft Heinz Co
12. Mondelez International Inc
13. PepsiCo Inc
14. Nestle SA
15. Unilever NV

Peers Debt %age Debt Equity %age Equity

PepsiCo 39,281 22% 1,40,551 78%
The Coca-Cola Company 47,685 21% 1,81,232 79%
Campbell 3,461 22% 12,311 78%
ConAgra 3,528 20% 14,387 80%
Danone 21,281 32% 44,817 68%
General Mills 9,727 27% 25,820 73%
Hormel Foods 780 4% 18,920 96%
Kellogg 9,454 32% 20,362 68%
McCormick 5,027 27% 13,729 73%
Mondelez 17,652 23% 57,831 77%
Nestlé S.A. 2,872 1% 2,36,773 99%
The Hershey 2,920 13% 19,110 87%
The JM Sumcker 5,258 29% 12,853 71%
Kraft Heinz 31,536 32% 67,888 68%
Uniliver 27,164 16% 1,39,519 84%

Fig. Peers Debt & Equity Distribution

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TRADING COMPS (INDUSTRY VALUATION)
1. Conagra Brands Inc

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

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2. Campbell Soup Company

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

3. General Mills Inc.

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

4. Hormel Foods Corporation

Fig. Basic Details

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 Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

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5. J.M. Smucker Company

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

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 Fig. Adjusted Financials to calculate LTM Multiples

6. McCormick & Company

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

7. The Coca-Cola Company

Fig. Basic Details

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 Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

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8. Danone

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

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 Fig. Adjusted Financials to calculate LTM Multiples

9. Hershey Co

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

10. Kellogg Co

Fig. Basic Details

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 Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

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11. Kraft Heinz Co.

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

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 Fig. Adjusted Financials to calculate LTM Multiples

12. Mondelez International Co.

Fig. Basic Details

Fig: Calculation of Enterprise Value

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 Fig. Adjusted Financials to calculate LTM Multiples

13. PepsiCo Inc

Fig. Basic Details

Fig. Calculation of ESoPS/ RSUs etc.

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

14. Nestle SA

Fig. Basic Details

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 Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

15. Unilever NV

Fig. Basic Details

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 Fig. Calculation of ESoPS/ RSUs etc.

Fig: Calculation of Enterprise Value

Fig. Adjusted Financials to calculate LTM Multiples

All the analysis of peers has been put in the valuation sheet separately.

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Comparable Company Analysis
(All numbers are in millions except per share data)

Industry Food and Beverage

Currency USD

F32 I18 I31 M36 M42 M40 M51 N36 N42 S36
LTM Multiples FY1 Multiple
Peer Group Companies CMP Market Cap EV EV/Sales EV/EBITDA EV/EBIT P/E PEG EV/Sales EV/EBITDA Growth
Conagra 38.5 15,637 19,169 2.5x 12.9x 15.6x 19.5x 22.2x 2.4x 12.7x 0.9%
Campbell 47.0 14,175 23,586 2.3x 10.6x 13.2x 15.9x 1.6x 2.7x 12.7x 9.8%
GeneralMills 60.2 35,049 44,966 2.9x 14.0x 17.2x 21.2x 4.8x 2.9x 13.8x 4.4%
Hormel 34.5 18,758 19,098 2.1x 13.9x 13.9x 20.1x 5.0x 2.0x 13.5x 4.0%
JMSmucker 131.1 14,989 20,067 2.7x 12.4x 16.7x 21.8x 36.8x 2.7x 12.0x 0.6%
McCormick 106.9 14,238 19,089 3.9x 20.9x 24.3x 25.1x 3.8x 3.5x 17.0x 6.6%
Cocacola 48.5 2,09,362 2,08,777 5.9x 19.1x 21.6x 79.4x NM 6.5x 17.9x -0.8%
Danone 67.9 43,078 56,717 2.3x 12.6x 16.0x 18.2x 5.8x 2.3x 12.1x 3.2%
Hershey 110.3 23,450 26,007 3.5x 14.3x 16.7x 27.7x 9.3x 3.3x 13.8x 3.0%
Kellogg 67.8 23,601 31,991 2.5x 12.0x 14.6x 16.8x 7.2x 2.4x 12.3x 2.3%
KraftHeinz 79.4 97,656 1,27,776 4.9x 15.4x 17.6x 8.6x 8.9x 4.9x 16.2x 1.0%
Mondelez 44.2 65,710 76,336 2.9x 15.6x 18.7x 20.7x 7.8x 2.9x 14.0x 2.6%
Pepsico 120.9 1,73,393 1,91,214 3.0x 14.9x 18.2x 23.9x 7.4x 2.9x 14.3x 3.2%
NestleSa 81.2 2,48,216 2,56,062 2.9x 14.6x 17.9x 25.9x 3.9x 2.8x 13.6x 6.6%
Unilever 45.9 1,26,359 1,44,292 2.7x 13.2x 15.4x 20.4x 20.2x 2.8x 13.2x 1.0%

Mean 3.1x 14.4x 17.2x 24.3x 10.4x 3.1x 14.0x 3%

Median 2.9x 14.0x 16.7x 20.7x 7.3x 2.8x 13.6x 3%
Here we can see the industry trends can be calculated from the median which gives a better
perspective.

EV/EBITDA = 14x which is best-fit multiple.

Dr. Pepper Valuation

Multiple Range Implied EV Equity Value Diluted Per Share Value

Fy1EBITDA Lower Higher Lower Higher Investments Minority Interest Total Debt Cash & Cash Equivalent Lower Higher Shares Lower Higher
1674 13.0x 14.0x 21762 23436 58 0 4,479 61 17,402 19,076 179.74 96.8 106.1

Lower and Higher range of EV/EBITDA has been taken to calculate the range of Dr Pepper
& Snapple Group share price.

Here we get share price between range 96.8 to 106.1

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 COMPANY VALUATION – Dr PEPPER & SNAPPLE GROUP

Perpetuity G Exit Multiple

Method Method
LT Growth Rate/Exit Multiple 1.25% 12.5x
Terminal Value 33,761 24,375
Present Value of TV 26,738 19,304

DCF Value of Firm 31,586 24,153

Add: Investments 58 58
Total Value of Firm 31,644 24,211
Less: Net Debt & Debt Equivalents 4,418 4,418
Less: Non Controling Interest - -
DCF value of Common Equity 27,226 19,793

DCF value of Common Equity after considering dilution

Diluted No of Shares 180 180
DCF value per share (USD) 151.5 110.115

Fig. Value of DPS per share based on the DCF method

DCF Valuation:

It includes two methods: Perpetuity Growth Method which means forecasting is done in such
a manner that company kept on growing forever, whereas, in EXIT multiple methods,
forecasting is done with the assumptions that if anyone buys the firm today, what amount firms
will get.

According to Perpetuity Growth Method DCF value per share is $151.5 and DPS per share
based on EXIT multiple methods is $110.115

110 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x 13.0x 13.5x 14.0x
5.0% 88 92 96 100 105 109 113 117 122
5.3% 86 91 95 99 103 107 112 116 120
5.5% 85 89 93 98 102 106 110 114 118
5.8% 84 88 92 96 100 105 109 113 117
6.0% 83 87 91 95 99 103 107 111 115
6.3% 82 86 90 94 98 102 106 110 114
6.5% 81 85 89 93 96 100 104 108 112
6.75% 80 83 87 91 95 99 103 107 111

Fig. Sensitivity analysis for DPS share based on exit multiple methods
Based on sensitivity analysis, DCF value per share of Dr Pepper & Snapple Group is range
from $100 to $117 with respective WACC & Exit Multiple
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57 | P a g e
 COMBINED ENTITY ANALYSIS – KDP

KEURIG GREEN MOUNTAIN

A leader in single-serve coffee in North America with installed brewers in more than
25 million North American homes and offices
75 owned, licensed and partner brands are available in the system
Strong distribution capabilities in traditional retail channels combined with unique
strength in e-commerce and office/hospitality
2017 Revenue: $4.1 billion
2017 Adjusted Op. Income $1.1 billion

DR PEPPER & SNAPPLE GROUP

Leading player in flavoured beverages in North America across all major categories
Over 50 owned, licensed and allied brands with 9 of the 10 leading brands holding No.
1 or No. 2 position
Powerful distribution system enables point-of-sale reach with company-owned DSD,
partnerships and warehouse delivery
2017 Revenue: $6.7 billion1
2017 Adjusted Op. Income: $1.4 billion

COMBINING TWO INDUSTRY LEADERS

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 Perpetuity G Exit Multiple
Method Method
LT Growth Rate/Exit Multiple 1.25% 12.5x
Terminal Value 77,718 49,163
Present Value of TV 62,220 39,358

DCF Value of Firm 72,016 49,155

Add: Investments 168 168
Total Value of Firm 72,184 49,323
Less: Net Debt & Debt Equivalents 17,696 17,696
Less: Non Controling Interest - -
DCF value of Common Equity 54,488 31,627

DCF value of Common Equity after considering dilution

Diluted No of Shares 1,388 1,388
DCF value per share (USD) 39.3 22.8

Fig. Value per Share based on the DCF Method

According to Perpetuity Growth Method DCF value per share is $39.3 and KDP per share
based on EXIT multiple methods is $22.8

Exit Multiple
22.8 11.0x 11.3x 11.5x 11.8x 12.0x 12.3x 12.5x 12.8x 13.0x 13.3x 13.5x 13.8x 14.0x
5.0% 18.8 19.3 19.9 20.4 21.0 21.5 22.1 22.7 23.2 23.8 24.3 24.9 25.4
5.500% 18.1 18.6 19.2 19.7 20.3 20.8 21.3 21.9 22.4 23.0 23.5 24.1 24.6
6.000% 17.4 18.0 18.5 19.0 19.5 20.1 20.6 21.1 21.7 22.2 22.7 23.3 23.8
6.500% 16.8 17.3 17.8 18.3 18.9 19.4 19.9 20.4 20.9 21.4 22.0 22.5 23.0
WACC
7.000% 16.2 16.7 17.2 17.7 18.2 18.7 19.2 19.7 20.2 20.7 21.2 21.7 22.2
7.500% 15.6 16.1 16.5 17.0 17.5 18.0 18.5 19.0 19.5 20.0 20.5 21.0 21.5
8.000% 15.0 15.5 15.9 16.4 16.9 17.4 17.9 18.3 18.8 19.3 19.8 20.3 20.8
8.500% 14.4 14.9 15.3 15.8 16.3 16.8 17.2 17.7 18.2 18.6 19.1 19.6 20.1
9.000% 13.8 14.3 14.8 15.2 15.7 16.1 16.6 17.1 17.5 18.0 18.4 18.9 19.4
9.500% 13.3 13.7 14.2 14.6 15.1 15.5 16.0 16.4 16.9 17.3 17.8 18.2 18.7
10.000% 12.8 13.2 13.6 14.1 14.5 15.0 15.4 15.8 16.3 16.7 17.2 17.6 18.0

Fig. Sensitivity analysis of KDP share based on Exit Multiple Method

Based on sensitivity analysis, DCF value per share of Keurig Dr Pepper is range from $16.9
to $22.2 with respective WACC & Exit Multiple

TRANSACTION COMPS
1. White Wave & Danone

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 Fig. Basic Details

Fig. Calculation for ESoPS/RSAs

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 Fig. Calculation for Equity consideration paid

Fig. Calculation of Enterprise Value

Fig. Calculation for LTM

From the analysis of White wave & Danone, we find out the Equity paid to acquire Danone is
$10,350 million. This figure represents the deal size which ultimately tells the industry M&A
deal size and how much premium has been paid by the industry.

2. Synder’s Lance & Campbell

Fig. Basic Details

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 Fig. Calculation for ESoPS/RSAs

Fig. Calculation for Equity consideration paid

Fig. Calculation of Enterprise Value

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 Fig. Calculation for LTM
From the analysis of Synder’s Lance & Campbell, we find out the Equity paid to acquire
Campbell is $4,998 million.

All the data has been put in the output sheet to calculate the range for controlling premium
industry offers.

Here we found the range between 20% to 30% for controlling premium.

Now, Value per share calculated from different valuation methods have been put in a separate
sheet to make football field which tells the valuation of the deal, whether the deal is expensive
0r cheap.

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 ANALYST RATINGS

Date Research Firm Action

6/19/18 Stifel Nicolaus Under Valued
3/19/18 RBC Capital Over Valued
3/14/18 Stifel Nicolaus Fairly Valued
2/16/18 Jefferies Under Valued
2/15/18 BMO Capital Fairly Valued
2/06/18 Barclays Over Valued
2/01/18 Stifel Nicolaus Fairly Valued
2/01/18 Gabelli & Co. Over Valued
1/30/18 Stifel Nicolaus Fairly Valued
1/30/18 Wells Fargo Under Valued

Analysts at Jefferies expect the new company to gain a major edge on its bolstered distribution
capabilities and range of hot and cold beverages. "It’s always been a two-horse race with Coke
and Pepsi," said analyst Caroline Levy. "I wouldn't be surprised to see this entity pull ahead of
Pepsi in the beverage business."

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 RESULT

Based on different valuation technique, per share value of Dr Pepper & Snapple Group has
been calculated & showed in below the football field.

Fig. Output showing all the per share value calculated from different valuation methods

FOOTBALL FIELD

Offer price was $126.6 ($103.75 + $22.8)

Max per share price is $124.8 in transaction comps.

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 CONCLUSION

JAB Holding Company seems to be paying a high price primarily for Dr Pepper Snapple
Group’s distribution network.

Keurig, geared with a fast pass to get its bottled coffee drinks out at retailers, will face off
against market leader Starbucks Corp., whose bottled drinks are distributed by Pepsi. The
combined company's new CEO, Keurig's Bob Gamgort, believes DPS's distribution network
will help market drinks such as Peet's Coffee and Forto coffee shops, while Keurig's online
presence will boost sales of Dr Pepper products through platforms such as Amazon.com Inc.

The companies expected $600 million in synergies on an annualized basis by 2021.

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 REFERENCES

U.S. Beverage Market Outlook 2018: Market Research Report. (2018). Retrieved
from https://www.packagedfacts.com/Beverage-Outlook-11442939/
Beverages. (2018). Retrieved from https://www.packagedfacts.com/Beverages-c165/
Food & Beverages - United States | Statista Market Forecast. (2018). Retrieved from
https://www.statista.com/outlook/253/109/food-beverages/united-states
CARSON, E. (2018). Dr Pepper Snapple Soars On Keurig Green Mountain Merger
Deal | Investor's Business Daily. Retrieved from https://www.investors.com/news/dr-
pepper-snapple-soars-on-keurig-green-mountain-merger-deal/
An Overview of the Food and Beverage Market in the US. (2018). Retrieved from
https://www.bizvibe.com/blog/food-beverage-market-us/
Benzinga | Stock Market Quotes, Business News, Financial News, Trading Ideas, and
Stock Research by Professionals. (2018). Retrieved from
https://www.benzinga.com/stock/dps/ratings
Adams, B. (2018). Mega-Deals Dominate Even as the U.S. M&A Market Remains in
a Slump. Retrieved from https://insight.factset.com/mega-deals-dominate-even-as-
the-u.s.-ma-market-remains-in-a-slump
Graphics, W. (2018). Investment Banking Scorecard. Retrieved from
http://graphics.wsj.com/investment-banking-scorecard/
Dr Pepper Snapple Group: Financials, earnings estimate and forecasts for Dr Pepper
Snapple Group | DPS | 4-Traders. (2018). Retrieved from http://www.4-
traders.com/DR-PEPPER-SNAPPLE-GROUP-3017910/financials/
Wilmot, S. (2018). Keurig-Dr Pepper: Why Coffee and Soda Might Just Mix.
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might-just-mix-1517254610
(2018). Retrieved from https://www.bizjournals.com/dallas/news/2018/01/29/analysts-
why-keurig-is-buying- dr-pepper-snapple.html
Dr Pepper Snapple Group Inc. (2018). Retrieved from
https://www.marketwatch.com/investing/stock/dps
Annual Reports. (2018). Retrieved from
http://investor.drpeppersnapplegroup.com/annual-report

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