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Keurig Dr Pepper merger brings defection, acquisition and new drama

Category: Finance,Retail

It's barely a week into the closing of the mega-merger that created Keurig Dr Pepper and already the beverage industry has seen a defection, an acquisition and a further jolt in the coffee wars.

The deal, which closed Monday, creates a beverage giant with $11 billion in revenue that combines Dr Pepper Snapple's drink and distribution network with Keurig' Green Mountain's coffee business. The giant is backed by JAB Holding Company, the investment firm that has put together a coffee-fueled empire that already includes Krispy Kreme and Panera Bread.

This week's shakeup, though, is among brands far smaller than the iconic drinks for which both companies are named. Instead, it's within the collection of trendy beverages Keurig Dr Pepper distributes through its "Allied Brands" network. A sizable chunk of the company's revenue comes from distributing drinks made by other companies, including brands like Fiji Water, BodyArmor and Vita Coco. The more they distribute, the greater the profits. Those beverages are comparatively tiny against the country's biggest sellers — yet yield inordinate power as sales of the largest legacy drinks lag.

That might was tested when Dr Pepper Snapple's merger with Keurig triggered an opportunity for some of Dr Pepper Snapple's Allied Brands brands to renegotiate or leave the network all together. Fiji this week announced it was defecting to build its own distribution system. Another Allied Brand, Big Red, this week signed an agreement to sell to Keurig Dr Pepper, a spokeswoman for the beverage giant told CNBC.

The deal valued Big Red, described as "a deliciously different red soda," at more than $200 million, a source familiar with the situation tells CNBC, requesting anonymity because the terms of the deal are confidential.

A spokeswoman for Keurig Dr Pepper told CNBC, "We currently expect to maintain many of our existing Allied Brand partners and add new ones, while also expecting that we may choose to exit others, where doing so makes strategic sense for Keurig Dr Pepper."

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