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Keurig CEO insists that buying Dr Pepper brands 'makes total sense'

  • Keurig Green Mountain plans to buy Dr Pepper Snapple to create a North American beverage giant.
  • Keurig CEO Bob Gamgort says the decision is "not intuitive at first, but as people learn about it they're going to realize that this makes total sense."
  • The buyout gives Keurig access to Dr Pepper Snapple's cross-country distribution network.

Keurig Green Mountain CEO Bob Gamgort knows that a newly announced buyout with beverage giant Dr Pepper Snapple might at first raise a few eyebrows.

"That's actually part of the excitement about this," Gamgort told CNBC's "Squawk on the Street" on Monday. "It's not intuitive at first, but as people learn about it they're going to realize that this makes total sense."

Gamgort, who has been CEO of the coffee and beverage appliance maker since May 2016, says one of the biggest reasons for the buyout is that Keurig will gain access to Dr Pepper's nationwide distribution system.

While Keurig expands its e-commerce presence, Gamgort said a "sophisticated" distribution network is a necessity when building national beverage brands.

"The combination of those two allows us to get to anywhere consumers are shopping," he said.

The two companies will emerge from the buyout as a single entity with about $11 billion in annual revenue, and with shareholder ownership split 87 percent to 13 percent in Keurig's favor. Dr Pepper's stock skyrocketed 25 percent after the news.

While both companies deal in selling drinks, they play different roles in the beverage sector. Keurig manufactures and sells single-cup beverage delivery systems for personal and commercial use, along with the disposable "K-Cups" used to make the drinks. Dr Pepper plays a more traditional role in the beverage market, bottling and distributing numerous soft drinks and juice brands.

By combining the two sides of the industry, the new entity moves closer to becoming a "total beverage solution," Dr Pepper CEO Larry Young said on "Squawk on the Street."

"In any category, they're changing very quickly now," Young said. "Beverages are moving fast, there's subcategories. We want to make sure that we're there every minute. Wherever you're at, anytime, anyplace."