DALLAS -- Dr Pepper Co. and The Seven-Up Co., acquired by the Dallas investment firm of Hicks & Haas for two separate investment groups in 1986, have agreed in principle to merge, their boards of directors said Monday.
The merger, expected to be completed in three months, is subject to the execution of a definitive agreement and regulatory approval. Financial and other details will be outlined in the definitive agreement, company executivessaid.
Hicks & Haas, which has been active in the acquisitions of soft drink companies in the past two years, purchased Dr Pepper from Forstmann Little & Co., a New York investment firm, for $416 million in August 1986. Three months later, another Hicks & Haas-led group bought Seven-Up Co. from Philip Morris Inc. for $240 million.
Monday's announcement said the two companies, which now share manufacturing facilities in St. Louis and administrative and marketing headquarters in Dallas, have been increasingly integrated since being acquired, resulting in continuity of management and significant cost reductions.
The two companies, which together had sales of over $500 million in 1987, now control 10.7 percent of the soft drink market, third behind Coca-Cola and Pepsi, said spokesman Tom Bayer.
'The merger will allow the companies to be completely operated as one company, which has obvious advantages internally and in the market place,' said John R. Albers, who will continue as chief executive officer after the formal merger.
Thomas O. Hicks and Robert B. Haas, co-chairmen of the two companies, said they foresee no management changes after the merger which 'is the logical culmination of 18 months of superb achievement at both companies.'
Shearson Lehman Hutton Inc. will advise Dr Pepper while Donaldson, Lufkin & Jenrette Securities Corp. will advise Seven-Up in the proposed transaction.
After the merger, the major owners of the combined entities will include their senior management, Hicks & Haas, Shearson Lehman, Cadbury Schweppes Plc.,Donaldson, Lufkin, and Citicorp Venture Capital, the announcement said.
Emanuel Goldman of Montgomery Securities in San Francisco, said the two companies have achieved significant cost advantages by sharing their facilities.
'This is only a formalization of what has been an informal situation,' he said. 'They have achieved production efficiencies and administrative savings by working together. Their product lines do not overlap. So this is only a natural step for them to take.'
Goldman called Albers 'one of the most astute executives in the soft drink industry' and credited him with the companies' growth, far above that of the industry as a whole.
Prior to its acquisition, Seven-Up had been losing money and market share of its diet and regular brands. Goldman said those problems have been checked under the new owners. He said the company has also markedly improved relations with its bottlers, a crucial factor for the survial of a soft drink company.
Albers said Seven-Up is now the leader of the lemon-lime category. He said the Cherry 7Up and Diet Cherry 7UP brands are the most successful new product introductions in recent soft drink history.
Seven-Up last week introduced two more brands, 7UP gold and Diet 7UP Gold, both spice-flavored beverages.
'We expect this merger to be welcome news to our bottler partners, who have significantly contributed to the dramatic success which both companies have enjoyed since their 1986 acquisitions,' Albers said.
Company executives said no layoffs are expected among the 850 employees of the two companies.