Dr Pepper Snapple Snaps Up Bai Brands in Health Kick Getty Images

Dr Pepper Snapple Snaps Up Bai Brands in Health Kick

The deal is Dr Pepper’s attempt to entice consumers who are shunning sugary drinks.

Dr Pepper Snapple Group agreed to acquire Bai Brands for $1.7 billion, snapping up a maker of fruit-flavored, antioxidant-infused beverages in a bid to attract health-focused consumers.

The acquisition, expected to close in the first quarter of next year, will decrease earnings per share by 3 cents in 2017 and add to profit in 2018, Dr Pepper Snapple said Tuesday in a statement.

The deal is Dr Pepper’s attempt to entice consumers who are shunning sugary drinks. While per-capita soda consumption in the U.S. fell to a three-decade low in 2015, beverage makers whose products don’t include sugar or artificial sweeteners have found opportunities to grow. Closely held Bai Brands, founded in 2009, is projected to generate $425 million in net sales next year.

“In a relatively short time, Bai has carved out a leadership position in the enhanced-water category and has now extended that success into other fast-growing and profitable categories,” Larry Young, chief executive officer of Dr Pepper Snapple, said in the statement. “We’re equally impressed with their innovation pipeline, which will continue to meet the needs of consumers seeking great tasting, low-calorie beverages with natural flavors and no artificial sweeteners.”

Beverage makers even larger than Dr Pepper Snapple are getting in on the healthier-drink trend as well. PepsiCo Inc. said on Tuesday that it agreed to buy the rest of KeVita, which makes fermented probiotic and kombucha beverages. PepsiCo took a minority stake in the company in 2013, according to Lauren Burns, a PepsiCo spokeswoman. PepsiCo will pay about $250 million, according to a person familiar with the matter, who asked not to be named because the terms aren’t public.

“For PepsiCo, the transaction will help to expand the companies health and wellness offerings,” Burns said.

Dr Pepper Snapple had previously invested in Bai and has distributed its drinks broadly since 2013. Hamilton, New Jersey-based Bai makes enhanced waters, carbonated flavored water, coconut water, ready-to-drink teas and sugar-free colas. The company had $120 million in revenue in 2015 and expects to reach $300 million this year. Founder Ben Weiss will continue to lead the company, according to the statement.

Tax Benefit

The purchase price includes a tax benefit of about $400 million on a net present value basis. Plano, Texas-based Dr Pepper Snapple will finance the deal through new unsecured notes and short-term commercial paper.

Bai’s investors include singer Justin Timberlake, who was named the brand’s “chief flavor officer” in October.

Dr Pepper Snapple rose as much as 2.9% to $87.74 on Tuesday in New York. The stock had fallen 8.5 percent this year through Monday.

Credit Suisse Group AG acted as financial adviser to Dr Pepper, while JPMorgan Chase & Co. advised Bai.

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