Monday morning, Keurig Green Mountain announced that it will acquire Dr. Pepper Snapple, making it one of the largest beverage mergers in years. Early news has sent Dr. Pepper Snapple (DPS) stock skyrocketing as high as 32% in pre-market trading and to roughly 24% in intraday trading. The deal is backed by JAB Holding, Co., an Austrian investment firm, which has privately held Keurig Green Mountain since 2016. JAB also owns Panera, Krispy Kreme Doughnuts, and other breakfast related businesses. The terms of the deal will pay $18.7 billion in cash to shareholders, and Dr. Pepper Snapple shareholders will get a $103.75 a share in cash dividends. Keurig Green Mountain will retain 87 percent majority ownership—leaving 13% to Dr. Pepper Snapple. The new combined company will be traded on the New York Stock Exchange and will be run by Keurig CEO Bob Gamgort. This merger will combine Dr. Pepper, 7UP, A&W root beer, Bai, and Keurig into one beverage giant and generate $11 billion in annual revenue. The deal is expected to close some time in the second quarter.

JAB’s decision to purchase a cold-beverage company is only logical. Soda giants such as Dr. Pepper Snapple, PepsiCo. Inc., and Coca-Cola Co. have been attempting to expand their portfolios with less-sugary drinks, and Dr. Pepper has been one that has not been able to diversify its sales as well. Keurig has a distribution network with e-commerce and tech sellers such as Amazon and Best Buy—a network in which Dr. Pepper has not been successful in. Meanwhile, Dr. Pepper has a distribution network that stretches to convenience stores, drugstores, and beverage vendors. Being the first company to combine hot and cold beverages combined with the distribution capabilities will yield a competitive advantage in an industry that has been historically dominated by Pepsi and Coca-Cola. Furthermore, this merger could increase market share significantly. Keurig was the fourth-largest coffee seller in the US in 2017, and Dr. Pepper Snapple was the third-largest soft-drink maker. Businesses will partake in mergers and acquisitions deals for many reasons: to capture market share, to decrease competition, to obtain a technology or patent, or to establish a distribution network. It is vital for a company’s survival and prosperity to expand, but sometimes it involves expanding through other means other than production, sales, and efficiency. Though these are important core factors in a successful business, it is sometimes more cost-effective and time-efficient to merge with or to acquire other businesses.