After acquiring "Piya Coffee," the stock price plummeted, forcing American beverage giant KDP to seek help from private equity, with Apollo and KKR planning to jointly invest $7 billion

After acquiring "Peet's Coffee," the stock price plummeted. American beverage giant Keurig Dr Pepper (KDP) is seeking $7 billion in funding from Apollo and KKR to address the crisis.

On Monday, October 27, KDP announced that private equity giants Apollo and KKR plan to jointly inject $7 billion into the company. This move is seen as a direct response to market concerns.

The immediate backdrop of this transaction is KDP's announcement of its €15.7 billion acquisition of European coffee manufacturer JDE Peet’s (Peet's Coffee), which has sparked severe criticism from shareholders, leading to a stock price drop of about a quarter. Investors generally believe that the acquisition and the subsequent company split plan will impose excessive debt on KDP's balance sheet and lack strategic synergies.

As a positive response to this "white knight" investment, market confidence was boosted. KDP's stock price surged by about 10% in early trading on Monday, recovering to nearly $30, and closing up over 7%.

Addressing Acquisition Aftermath and Activist Investors

According to analysts, the core purpose of this financing is to address the dual pressures KDP faces following the announcement of its acquisition of JDE Peet’s: market concerns about its financial leverage and potential challenges from activist investors. Following the acquisition announcement in August, investors voted with their feet, leading to a significant reduction in the company's market value.

Additionally, sources revealed that after KDP's stock price plummeted, activist hedge fund Starboard Value seized the opportunity. Starboard Value has established a position of about $270 million in KDP, holding approximately 1% of the shares.

The introduction of investments from Apollo and KKR is partly aimed at fending off potential demands for change from Starboard and other activist investors. However, another source indicated that KDP began seeking financing as early as early September, before Starboard engaged with the company.

This move also highlights a growing trend: private equity, once viewed as "barbarians at the gate," is increasingly playing the role of "white knights," helping publicly traded companies' management fend off external challenges. KKR has previously provided similar support when companies like Henry Schein and Box faced pressure from activist investors.

Management Adjustments and Future Plans

Along with announcing the substantial financing, KDP also disclosed its latest management adjustment plans. The company will seek a new CEO for its coffee subsidiary, which differs from the plan announced in August. Current CEO Tim Cofer will lead the independent beverage business unit after the split.

According to the company's plan, after completing the acquisition of JDE Peet’s, KDP will split into two independent companies, each focusing on sparkling beverages and coffee products. The investment from Apollo and KKR provides crucial support for this series of complex capital operations and strategic transformations