Coca-Cola Co will pay Dr Pepper Snapple Group Inc $715 million for the right to continue selling Dr Pepper drinks once it acquires its North American bottler.
As part of the eagerly awaited deal, announced on Monday, Coke will also include Dr Pepper and Diet Dr Pepper in its new Freestyle soda fountains, which let consumers choose drinks from more than 100 flavor combinations.
Dr Pepper said it will invest $115 million to $135 million in the fountain program.
After completing the buyout of the U.S. operations of Coca-Cola Enterprises , Coke will distribute Dr Pepper in the United States and Canada Dry in the Northeastern part of the country, where they are currently distributed by CCE. It will distribute Canada Dry, C'Plus and Schweppes in Canada.
The agreement follows a similar deal between Dr Pepper and PepsiCo Inc , whose deal to buy its own top North American bottlers led it to pay Dr Pepper Snapple $900 million to continue selling Dr Pepper, Crush and Schweppes.
Shares of Dr Pepper were down 1.7 percent on Monday as some investors were disappointed with the payout, while Coca-Cola shares were flat.
The terms and cash amount are in line with the previous deal with PepsiCo, however we believe some investors expected a higher payment to come from Coke, said Credit Suisse analyst Carlos Laboy in a research note. We have heard from investors who were expecting the number to be north of what PepsiCo paid.
Coke Chief Financial Officer Gary Fayard told reporters that Coke got a good deal and a fair deal. He also said that the acquisition of its U.S. bottling operations is still on track to close during the fourth quarter.
Pepsi acquired its U.S. bottling operations in late February.
Coke's distribution deal with Dr Pepper Snapple runs for 20 years and includes an option to renew for an additional 20 years.
(Reporting by Nivedita Bhattacharjee and Martinne Geller; Editing by Lisa Von Ahn and Matthew Lewis)