| 2016-10-04 11:40:41|
DPS, KO… 11:40 10/04 10/04/16
Dr Pepper Snapple slips after partner Bai said to seek sale
Shares of Dr Pepper Snapple (DPS) are sliding following a media report saying that Bai Brands is exploring a potential sale. In a research note this morning, Evercore ISI analyst Robert Ottenstein downgraded Dr Pepper Snapple to Neutral as he believes the loss of Bai, one of its key allied brands, may shift investor's psychology on the stock. BAI BRANDS POTENTIAL SALE: According to a report by Reuters, privately-held U.S. beverage company Bai Brands has hired JPMorgan to explore a potential sale and reach out to possible buyers. Bai could be valued at over $2B including debt, the publication said, citing sources familiar with the matter. Dr Pepper Snapple last year bought a minority stake in Bai after signing a distribution deal, though the company has previously expressed wariness of an outright acquisition. Reuters also added that Coca-Cola (KO) and PepsiCo (PEP) could potentially have an interest in Bai. SALE MAY CHANGE INVESTOR SENTIMENT: Following the media report saying that Bai is looking for a new owner, Evercore ISI analyst Robert Ottenstein downgraded Dr Pepper Snapple to Hold from Buy as he believes the potential sale may shift investor's psychology on the stock and its Allied Brands business, which has driven roughly half of its recent growth. Moreover, Ottenstein estimates a negative earnings impact of 20c-25c if Dr Pepper Snapple lost distribution of Bai. While the analyst acknowledged that it is not certain that Bai's founder and CEO Ben Weiss will succeed in selling the company, he noted that he believes there is a reasonable likelihood that it will get sold. TOPLINE AT RISK: Voicing a similar opinion, Bernstein analyst Ali Dibadj noted that he has cautioned investors for months that Dr Pepper Snapple's topline is at risk given its dependency on allied brands, which are third party and relatively early stage brands distributed by the company. Given that Bai is one of Dr Pepper Snapple's key allied brands, a potential sale could result in a meaningful 100 basis point drag on the company's revenue, he contented. PRICE ACTION: In late morning trading, shares of Dr Pepper Snapple have dropped about 4.5% to $86.86.