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  1. 1. Monster Beverage Corporation to acquire Dr Pepper Snapple 1 THE MERGERS AND ACQUISATIONS PITCH BOOK PROPOSED ACQUISITION OF DR PEPPER SNAPPLE® BY MONSTER BEVERAGE CORPORATION® By Kaiwei Zhang, Jiani Wen, Lihua Wang and Shuohua Xu Led by Zi Wang 5, Dec 2015
  2. 2. Monster Beverage Corporation to acquire Dr Pepper Snapple 2 Contents TERM SHEET............................................................................................................................................................................................................................................................... 4 DEAL RATIONALE....................................................................................................................................................................................................................................................... 5 BUSINESS DESCRIPTION—KEY BRANDS.................................................................................................................................................................................................................... 6 INDUSTRY OVERVIEW— CLASSIFICATION OF BEVERAGE INDUSTRY ...................................................................................................................................................................... 7 INDUSTRY OVERVIEW— SOFT DRINKS MARKET SIZE IN UNITED STATES (IN MILLIONS)....................................................................................................................................... 8 INDUSTRY OVERVIEW— PER CAPITAL CONSUMPTION OF SOFT DRINKS IN US FROM 2009-2014 (IN GALLONS)................................................................................................ 9 INDUSTRY OVERVIEW— SOFT DRINKS MARKET SHARE........................................................................................................................................................................................ 10 INDUSTRY OVERVIEW— SOFT DRINKS GEOGRAPHIC MARKET SHARE................................................................................................................................................................. 11 INDUSTRY OVERVIEW—DOWNTREND OF THE MARKET ....................................................................................................................................................................................... 12 ADVANTAGES OF DPS OVER OTHER SELLERS......................................................................................................................................................................................................... 13 IMPORTANT VALUATION ASSUMPTIONS............................................................................................................................................................................................................... 14 VALUATION SUMMARY: STAND-ALONE VALUES (IN DOLLARS PER SHARE)......................................................................................................................................................... 15 SENSITIVITY ANALYSIS—DCF................................................................................................................................................................................................................................... 16 SENSITIVITY ANALYSIS—RESIDUAL INCOME.......................................................................................................................................................................................................... 17 SYNERGY ANALYSIS ................................................................................................................................................................................................................................................. 18 PREMIUM ANALYSIS................................................................................................................................................................................................................................................ 19 NPV ANALYSIS FOR THE ACQUIRER AND THE BUYER ............................................................................................................................................................................................ 20 TRANSACTION PAYMENT METHOD........................................................................................................................................................................................................................ 21 RISKS ........................................................................................................................................................................................................................................................................ 22
  3. 3. Monster Beverage Corporation to acquire Dr Pepper Snapple 3 OTHER ASSUMPTIONS SUMMARY ......................................................................................................................................................................................................................... 23 NOTES ...................................................................................................................................................................................................................................................................... 24 EXHIBITS................................................................................................................................................................................................................................................................... 25
  4. 4. Monster Beverage Corporation to acquire Dr Pepper Snapple 4 TERM SHEET Purchase Information Total Deal Size $20,210.41 million Implied Price per share $106.99 Exchange Ratio N/A (cash deal) Resulting Monster ownership of Dr Pepper 100% Accounting Issue Consideration 100% of stock Numbers of Shares to be issued 0%(cash deal) Legal Issue and process requirements Antitrust issue Approved by government Closing date 1, Jan 2017[1] Shareholders vote Both companies’ shareholders must approve this deal. Other Issues Organizational Structure Change Dr Pepper Snapple Group becomes a wholly-owned subsidiary of Monster Beverage Corporation. Executives Timothy T. Yates, CEO ; Mark Stoever, CFO[2] Board Seats All board members remain same. Jim Baldwin and Derry Hobson will join new company and enter the board of directors.[3] Headquarters Corona, CA, USA Name Monster Beverage Corporation Reduction in Workforce All management in Dr Pepper Snapple Group will leave the company except for Jim Baldwin and Derry Hobson. Overlapping non-management personnel will leave Dr Pepper Snapple Group.
  5. 5. Monster Beverage Corporation to acquire Dr Pepper Snapple 5 DEAL RATIONALE By acquiring Dr Pepper Snapple Group, Monster1 will mainly be able to  Increase revenues and reduce SG&A by consolidating distribution channels  Reduce SG&A by cutting down numbers of management and some workers  Result in lower cost of capital by becoming a larger scale of company (financial synergy) 1 Dr Pepper Snapple Group® and Monster Beverage Corporation® will be abbreviated to “DPS” and “MNST” in our following statements respectively.
  6. 6. Monster Beverage Corporation to acquire Dr Pepper Snapple 6 BUSINESS DESCRIPTION—KEY BRANDS BUSINESS DESCRIPTION—HISTORY C
  7. 7. Monster Beverage Corporation to acquire Dr Pepper Snapple 7 INDUSTRY OVERVIEW— CLASSIFICATION OF BEVERAGE INDUSTRY We majorly focus on the CDS and Sports Drinks today.2 2 Source: Beverage Marketing Corporation U.S. Liquid Refreshment – Volume Growth
  8. 8. Monster Beverage Corporation to acquire Dr Pepper Snapple 8 INDUSTRY OVERVIEW— SOFT DRINKS MARKET SIZE IN UNITED STATES (IN MILLIONS)
  9. 9. Monster Beverage Corporation to acquire Dr Pepper Snapple 9 INDUSTRY OVERVIEW— PER CAPITAL CONSUMPTION OF SOFT DRINKS IN US FROM 2009-2014 (IN GALLONS)
  10. 10. Monster Beverage Corporation to acquire Dr Pepper Snapple 10 INDUSTRY OVERVIEW— SOFT DRINKS MARKET SHARE
  11. 11. Monster Beverage Corporation to acquire Dr Pepper Snapple 11 INDUSTRY OVERVIEW— SOFT DRINKS GEOGRAPHIC MARKET SHARE
  12. 12. Monster Beverage Corporation to acquire Dr Pepper Snapple 12 INDUSTRY OVERVIEW—DOWNTREND OF THE MARKET 1. PepsiCo’s volume declined last year while Coca Cola posted the modest growth last year. 2. DPS post flat carbonated soft drink volume last year. 3. MNST reported a 7% increase in volume, followed by Red Bull, which notched a 5.6% increase. Carbonated Soft Drinks – Volumes (2014)
  13. 13. Monster Beverage Corporation to acquire Dr Pepper Snapple 13 ADVANTAGES OF DPS OVER OTHER SELLERS 3 By Free cash flow to firm(FCFF) from 2010-2015 4 See EXHIBIT 1 for Beneish M-Score calculation detail 5 See EXHIBIT 2 for comparison of stock price vs. market  Abundant Free Cash Flow3  Mature Company And High-Quality Management[4]4  Outperformance Of Market5  Consolidation Of Distribution Channels  Economics Of Scale
  14. 14. Monster Beverage Corporation to acquire Dr Pepper Snapple 14 IMPORTANT VALUATION ASSUMPTIONS6 6 For other assumptions please see “OTHER ASSUMPTIONS SUMMARY”. All in millions, except for percentages and date. 7 Adjusting beta by converting to 1. 8 Scenario analysis is conducted in valuation part. See EXHIBIT-VALUATION for more details. Risk-free Rate 0.62% Market Risk Premium 13.50% Beta (Adjusted)7 0.55 Cost of Equity 8.08% Terminal Growth(Base Case)8 2.00%
  15. 15. Monster Beverage Corporation to acquire Dr Pepper Snapple 15 VALUATION SUMMARY: STAND-ALONE VALUES (IN DOLLARS PER SHARE)9 9 See EXHIBIT 3-7 VALUATION for details.
  16. 16. Monster Beverage Corporation to acquire Dr Pepper Snapple 16 SENSITIVITY ANALYSIS—DCF GrowthRateCostofEquity Change of NPV Change in Price
  17. 17. Monster Beverage Corporation to acquire Dr Pepper Snapple 17 SENSITIVITY ANALYSIS—RESIDUAL INCOME 6% 7% 8% 9% 10% 11% 12% 1.0% 74.57$ 62.39$ 53.65$ 47.06$ 41.90$ 37.74$ 34.31$ 1.5% 80.24$ 65.96$ 56.02$ 48.70$ 43.06$ 38.58$ 34.92$ 2.0% 87.34$ 70.24$ 58.79$ 50.57$ 44.37$ 39.51$ 35.59$ 2.5% 96.47$ 75.48$ 62.06$ 52.73$ 45.85$ 40.55$ 36.34$ 3.0% 108.65$ 82.02$ 65.99$ 55.26$ 47.55$ 41.73$ 37.16$ 3.5% 125.70$ 90.45$ 70.80$ 58.25$ 49.51$ 43.06$ 38.09$ 4.0% 151.28$ 101.68$ 76.81$ 61.83$ 51.79$ 44.58$ 39.13$ 4.5% 193.93$ 117.41$ 84.54$ 66.21$ 54.50$ 46.34$ 40.32$ 5.0% 279.23$ 141.01$ 94.85$ 71.69$ 57.74$ 48.39$ 41.67$ Cost of Capital GrowthRate
  18. 18. Monster Beverage Corporation to acquire Dr Pepper Snapple 18 SYNERGY ANALYSIS10 Quality Quantity 10 See EXHIBIT 8 for more details Greater pricing power Established distribution network Brand name recognition Economics of scale Higher debt capacity Diversification
  19. 19. Monster Beverage Corporation to acquire Dr Pepper Snapple 19 PREMIUM ANALYSIS11  Average premium of beverage industry transactions in recent 10 years is 34.7%  15.77%12 premium above DPS closing price on 4, Dec 2015 is offered  This premium is deemed acceptable, compared with industry average because o Lower premium is a price advantage o DPS is hard to find a strategic buyer due to its size o DPS’s main business is in mature and declining industry 11 See EXHIBIT 9 for details. Note that in 2008 where there was a financial crisis, any transaction data that in that year and subsequent 2009 was not considered in calculating average premium. 12 Based on current market price of $92.42.
  20. 20. Monster Beverage Corporation to acquire Dr Pepper Snapple 20 NPV ANALYSIS FOR THE ACQUIRER AND THE BUYER This deal has economics because from NPV standpoint, the seller and buyer both have positive gain. Pt(Price paid for target) 20.2B -VT (stand-alone value) 13.4B =Gain to seller 6.8B Synergy 6.8B - Takeover Premium 4.0B =Gain to buyer 2.8B
  21. 21. Monster Beverage Corporation to acquire Dr Pepper Snapple 21 TRANSACTION PAYMENT METHOD Cash instead of stock will be used to pay for the transaction because  Board of directors of DPS are about to retire13 , even though current stock price of Monster is underestimated14 .  Cash payment helps lock up the target’s gain and provide liquidity to DPS shareholders. 13 See EXHIBIT 10 for more details of their bibliography of DPS BOD team 14 According to comparison of stand-alone value and its current market price as of 4, Dec $156.70, while 1 year Median Target price is $165.00. Data sources is Capital IQ
  22. 22. Monster Beverage Corporation to acquire Dr Pepper Snapple 22 RISKS This deal is exposed to some risks.  Will expected synergies be fully materialized?  Will cutting down overlapping personnel cause social activity that brings harmful reputations to the new company?  Will this deal bring subsequent competitive actions, such as a new merge of main competitors?  Will this deal correctly and fully be absorbed by market in time?  Will the buyer, MNST, accept our assumptions and conditions of the deal?  Will shareholders of DPS accept our assumptions and conditions of the deal? 15  Will complete cash payment be accessible in the deal? 15 See EXHIBIT 11 for ownership information.
  23. 23. Monster Beverage Corporation to acquire Dr Pepper Snapple 23 OTHER ASSUMPTIONS SUMMARY  All valuation methods forecast next five years and apply a terminal value at the end of 2019, the last forecast year. In fact, DPS will be confronted with various factors, which influence company’s operation that would vary from year to year, including years beyond 2019.  The sources of financial data provided in this book are Capital IQ, Bloomberg and company’s annual reports. They themselves could be biased due to accounting manipulations (deliberate dishonesty) and other reasons (incompetence).  The management compensation package in this deal is ignored, which overestimates buyer’s NPV.
  24. 24. Monster Beverage Corporation to acquire Dr Pepper Snapple 24 NOTES [1] As of today on 5, Dec 2015. We strongly believe that this deal needs at least one year to digest since announcement. Most of deals failed since management are usually good deal maker but not good managers. People who used to work in different companies separately now need to work together and need time to adapt to each other. Also, new distribution channels cost time to be consolidated and could be very time-consuming. [2] Executives of MNST will remain in the new company. [3] Jim Baldwin and Derry Hobson will join new company and enter Board of Directors. Jim Baldwin is serving as Executive Vice President and General Counsel in DPS and could provide expertise and experience in managing future Dr Pepper’s business. Derry Hobson is serving Executive Vice President - Supply Chain in DPS and will play an important role in consolidation of distribution channels in new company. [4] Corporate Governance and M-score has proved that management and internal control of DPS is good. In terms of size, expertise and background of BOD and management, DPS has an impressive management team. Also, Beneish M-Score of DPS as of 5, Dec is -2.59, showing that its financial statements, including data used in this book, is less likely to be manipulated.
  25. 25. Monster Beverage Corporation to acquire Dr Pepper Snapple 25 EXHIBITS EXHIBIT 1 Beneish M-Score An M-Score of less than -2.22 suggests that the company is not an accounting manipulator. Jun13 Sep13 Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 DSRI 1.0377 0.9651 0.9366 0.9551 0.9391 1.0186 0.9658 1.0005 1.0511 1.0173 GMI 0.9827 1.0008 0.9995 0.9877 0.9837 0.9765 0.9836 1.003 1.0082 1.0093 AQI 1.015 1.0222 1.0065 0.9941 0.9898 0.9835 0.9933 1.0034 0.9947 1.0068 SGI 1.005 1.0077 1.0003 1.0003 1.0053 1.0095 1.0207 1.0264 1.027 1.028 DEPI 1.068 1.011 1.0007 0.974 0.946 0.9593 0.9738 0.9964 1.0012 0.9944 SGAI 1.0099 1.0072 1.0014 0.9931 0.9679 0.9708 1.0065 1.004 1.0129 1.0086 LVGI 0.9767 1.0115 1.0173 1.0408 1.0631 1.0084 1.016 1.008 1.0116 1.0484 TATA -0.0295 0.0252 0.0172 0.017 0.0175 -0.0374 -0.0386 -0.035 -0.0261 -0.0302 M-score -2.57 -2.38 -2.46 -2.47 -2.48 -2.65 -2.69 -2.62 -2.53 -2.59
  26. 26. Monster Beverage Corporation to acquire Dr Pepper Snapple 26 EXHIBIT 2 DPS STOCK AND S&P 500
  27. 27. Monster Beverage Corporation to acquire Dr Pepper Snapple 27 EXHIBIT 3 MULTIPLE VALUATIONS Book Value/Share $ 11.89 Basic EPS $ 3.59 Total Revenue $ 6,121.00 EBITDA $ 1,396.00 Shares out. 188.89 ( Millions) Debt $2,514.00( Millions) Cash& Equivalent $237.00( Millions) Industry Multiples CY2011 CY2012 CY2013 CY2014 Latest Resulting Values, in Thousands TEV/Total Revenue 2.2x 2.5x 2.3x 2.6x 2.7x $16,526.70 TEV/EBITDA 10.8x 12.5x 11.9x 13.5x 14.2x $19,823.20 P/E 18.0x 20.3x 20.4x 25.3x 28.2x $21,815.93 P/BV 4.0x 4.4x 3.9x 5.0x 5.6x $15,127.71 AVERAGE $18,323.39
  28. 28. Monster Beverage Corporation to acquire Dr Pepper Snapple 28 EXHIBIT 4 DCF ANALYSIS (BALANCE SHEET PART 1) Balance Sheet 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E ASSETS Cash And Equivalents 280$ 315$ 701$ 366$ 153$ 237$ 270$ 270$ 270$ 270$ 270$ Trading Asset Securities 6$ 8$ 8$ 11$ 17$ 11$ 10$ 10$ 10$ 10$ 10$ Total Cash & ST Investments 286$ 323$ 709$ 377$ 170$ 248$ 280$ 280$ 280$ 280$ 280$ Accounts Receivable 540$ 536$ 585$ 552$ 564$ 556$ 556$ 556$ 556$ 556$ 556$ Other Receivables 32$ 35$ 50$ 50$ 58$ 61$ 48$ 48$ 48$ 48$ 48$ Total Receivables 572$ 571$ 635$ 602$ 622$ 617$ 603$ 603$ 603$ 603$ 603$ Inventory 262$ 244$ 212$ 197$ 200$ 204$ 200$ 200$ 195$ 195$ 195$ Prepaid Exp. 78$ 69$ 105$ 90$ -$ -$ 57$ 57$ 57$ 57$ 57$ Deferred Tax Assets, Curr. 53$ 57$ 96$ 66$ 66$ 67$ 68$ 68$ 68$ 68$ 68$ Other Current Assets 28$ 45$ -$ 3$ 61$ 75$ 35$ 35$ 35$ 35$ 35$ Total Current Assets 1,279$ 1,309$ 1,757$ 1,335$ 1,119$ 1,211$ 1,243$ 1,243$ 1,238$ 1,238$ 1,238$ Gross Property, Plant & Equipment 1,898$ 2,081$ 2,190$ 2,365$ 2,452$ 2,542$ 2,742$ 2,942$ 3,142$ 3,342$ 3,542$ Accumulated Depreciation (789)$ (913)$ (1,038)$ (1,163)$ (1,279)$ (1,401)$ (1,463)$ (1,532)$ (1,608)$ (1,691)$ (1,781)$ Net Property, Plant & Equipment 1,109$ 1,168$ 1,152$ 1,202$ 1,173$ 1,141$ 1,279$ 1,410$ 1,534$ 1,651$ 1,761$ Long-term Investments 9$ 11$ 35$ 14$ 36$ 68$ 29$ 29$ 29$ 29$ 29$ Goodwill 2,983$ 2,984$ 2,980$ 2,983$ 2,988$ 2,990$ 2,985$ 2,985$ 2,985$ 2,986$ 2,986$ Other Intangibles 2,702$ 2,691$ 2,677$ 2,684$ 2,694$ 2,684$ 2,689$ 2,686$ 2,686$ 2,687$ 2,688$ Deferred Tax Assets, LT 151$ 144$ 131$ 130$ 85$ 74$ 119$ 119$ 119$ 119$ 119$ Deferred Charges, LT 23$ 15$ 97$ 76$ 70$ 64$ 58$ 58$ 58$ 58$ 58$ Other Long-Term Assets 520$ 537$ 454$ 504$ 36$ 41$ 349$ 349$ 349$ 349$ 349$ Total Assets 8,776$ 8,859$ 9,283$ 8,928$ 8,201$ 8,273$ 8,750$ 8,879$ 8,997$ 9,116$ 9,228$
  29. 29. Monster Beverage Corporation to acquire Dr Pepper Snapple 29 EXHIBIT 4 DCF ANALYSIS (BALANCE SHEET PART 2) Balance Sheet-Continued 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E LIABILITIES Accounts Payable 252$ 298$ 265$ 283$ 271$ 289$ 276$ 276$ 276$ 276$ 276$ Accrued Exp. 427$ 371$ 410$ 401$ 394$ 447$ 408$ 408$ 408$ 408$ 408$ Curr. Port. of LT Debt -$ 404$ 452$ 251$ -$ -$ -$ 500$ -$ 724$ 250$ Curr. Port. of Cap. Leases 3$ 3$ 4$ -$ 1$ 3$ 2$ 2$ 2$ 2$ 2$ Curr. Income Taxes Payable 4$ 18$ 530$ 45$ 33$ 10$ 107$ 107$ 107$ 107$ 107$ Unearned Revenue, Current -$ 65$ 65$ 65$ 65$ 64$ 54$ 54$ 54$ 54$ 54$ Other Current Liabilities 168$ 179$ 189$ 187$ 201$ 225$ 192$ 192$ 192$ 192$ 192$ Total Current Liabilities 854$ 1,338$ 1,915$ 1,232$ 1,030$ 1,038$ 1,039$ 1,539$ 1,039$ 1,763$ 1,289$ Long-Term Debt 2,961.00$ 1,677.00$ 2,249.00$ 2,500.00$ 2,487.00$ 2,514.00$ 2,398$ 1,898$ 2,398$ 1,674$ 2,148$ Capital Leases 13.00$ 10.00$ 7.00$ 56.00$ 55.00$ 83.00$ 37$ 37$ 37$ 37$ 37$ Unearned Revenue, Non-Current -$ 1,515.00$ 1,449.00$ 1,386.00$ 1,318.00$ 1,250.00$ 1,153$ 1,153$ 1,153$ 1,153$ 1,153$ Pension & Other Post-Retire. Benefits 49.00$ 19.00$ 44.00$ 55.00$ 26.00$ 44.00$ 44.00$ 44.00$ 44.00$ 44.00$ 44.00$ Def. Tax Liability, Non-Curr. 1,038.00$ 1,083.00$ 586.00$ 630.00$ 755.00$ 801.00$ 801.00$ 801.00$ 801.00$ 801.00$ 801.00$ Other Non-Current Liabilities 674.00$ 758.00$ 770.00$ 789.00$ 253.00$ 249.00$ 249.00$ 249.00$ 249.00$ 249.00$ 249.00$ Total Liabilities 5,589.00$ 6,400.00$ 7,020.00$ 6,648.00$ 5,924.00$ 5,979.00$ 5,721.50$ 5,721.50$ 5,721.50$ 5,721.50$ 5,721.50$ Common Stock 3.00$ 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ 1.89$ 1.80$ 1.72$ 1.65$ 1.58$ Additional Paid In Capital 3,156.00$ 2,085.00$ 1,631.00$ 1,308.00$ 970.00$ 658.00$ 1,047.95$ 826.57$ 589.72$ 338.13$ 39.09$ Retained Earnings 87.00$ 400.00$ 740.00$ 1,080.00$ 1,393.00$ 1,771.00$ 2,115.76$ 2,466.05$ 2,821.04$ 3,191.99$ 3,602.77$ Comprehensive Inc. and Other (59.00)$ (28.00)$ (110.00)$ (110.00)$ (88.00)$ (137.00)$ (137.00)$ (137.00)$ (137.00)$ (137.00)$ (137.00)$ Total Common Equity 3,187.00$ 2,459.00$ 2,263.00$ 2,280.00$ 2,277.00$ 2,294.00$ 3,028.60$ 3,157.42$ 3,275.49$ 3,394.77$ 3,506.44$ Total Liabilities And Equity 8,776.00$ 8,859.00$ 9,283.00$ 8,928.00$ 8,201.00$ 8,273.00$ 8,750.10$ 8,878.92$ 8,996.99$ 9,116.27$ 9,227.94$
  30. 30. Monster Beverage Corporation to acquire Dr Pepper Snapple 30 EXHIBIT 5 DCF ANALYSIS (INCOME STATEMENT) Income Statement 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Revenue Beverage Concentrates 1,063$ 1,156$ 1,193$ 1,221$ 1,229$ 1,228$ 1,253$ 1,274$ 1,294$ 1,310$ 1,323$ Packaged Beverages 4,111$ 4,098$ 4,292$ 4,358$ 4,306$ 4,361$ 4,448$ 4,526$ 4,594$ 4,651$ 4,698$ Latin America Beverages 357$ 382$ 418$ 416$ 462$ 532$ 559$ 584$ 607$ 628$ 647$ Total Revenue 5,531$ 5,636$ 5,903$ 5,995$ 5,997$ 6,121$ 6,259$ 6,384$ 6,495$ 6,589$ 6,668$ Cost Of Goods Sold 2234 2243 2485 2500 2499 2491 2,629$ 2,681$ 2,728$ 2,735$ 2,667$ Gross Profit 3297 3393 3418 3495 3498 3630 3,630$ 3,703$ 3,767$ 3,855$ 4,001$ Selling General & Admin Exp. 2,135$ 2,233$ 2,257$ 2,268$ 2,271$ 2,336$ 2,504$ 2,554$ 2,598$ 2,636$ 2,667$ R & D Exp. - - - - - - -$ -$ -$ -$ -$ Depreciation & Amort. 117$ 127$ 126$ 124$ 115$ 115$ 62$ 69$ 76$ 83$ 89$ Other Operating Expense/(Income) (40)$ 8$ 11$ 11$ 9$ 1$ -$ -$ -$ -$ -$ Other Operating Exp., Total 2,212$ 2,368$ 2,394$ 2,403$ 2,395$ 2,452$ 2,566$ 2,623$ 2,674$ 2,719$ 2,757$ Operating Income 1085 1025 1024 1092 1103 1178 1,065$ 1,080$ 1,093$ 1,136$ 1,244$ Interest Expense (243.00)$ (128.00)$ (114.00)$ (125.00)$ (123.00)$ (109.00)$ (140)$ (140)$ (140)$ (140)$ (140)$ Interest and Invest. Income 4.00$ 3.00$ 3.00$ 2.00$ 2.00$ 2.00$ 3$ 3$ 3$ 3$ 3$ Net Interest Exp. (239.00)$ (125.00)$ (111.00)$ (123.00)$ (121.00)$ (107.00)$ (137.67)$ (137.67)$ (137.67)$ (137.67)$ (137.67)$ Income/(Loss) from Affiliates 2.00$ 1.00$ 1.00$ - 1.00$ 1.00$ 1$ 1$ 1$ 1$ 1$ Other Non-Operating Inc. (Exp.) 6.00$ 21.00$ 1.00$ - 4.00$ - 8$ 8$ 8$ 8$ 8$ EBT Excl. Unusual Items 854.00$ 922.00$ 915.00$ 969.00$ 987.00$ 1,072.00$ 936.46$ 951.46$ 964.25$ 1,007.57$ 1,115.77$ Restructuring Charges -$ -$ -$ -$ (7.00)$ -$ -$ -$ -$ -$ -$ Other Unusual Items 16.00$ (100.00)$ 11.00$ 9.00$ (443.00)$ - -$ -$ -$ -$ -$ EBT Incl. Unusual Items 870.00$ 822.00$ 926.00$ 978.00$ 543.00$ 1,074.00$ 936.46$ 951.46$ 964.25$ 1,007.57$ 1,115.77$ Income Tax Expense 315.00$ 294.00$ 320.00$ 349.00$ (81.00)$ 371.00$ 327.76$ 333.01$ 337.49$ 352.65$ 390.52$ Net Income 555.00$ 528.00$ 606.00$ 629.00$ 624.00$ 703.00$ 608.70$ 618.45$ 626.76$ 654.92$ 725.25$ Per Share Items Basic EPS 2.18$ 2.20$ 2.77$ 2.99$ 3.08$ 3.59$ 3.22$ 3.44$ 3.64$ 3.97$ 4.60$ Weighted Avg. Basic Shares Out. 254.2 240.4 218.7 210.6 202.9 195.8 188.89$ 179.74$ 172.36$ 164.98$ 157.60$ Dividends per Share 0.15$ 0.90$ 1.21$ 1.36$ 1.52$ 1.64$ 1.13$ 1.13$ 1.13$ 1.13$ 1.13$ Payout Ratio % NA 36.74% 41.42% 45.15% 48.40% 45.09% 0.43$ 0.43$ 0.43$ 0.43$ 0.43$
  31. 31. Monster Beverage Corporation to acquire Dr Pepper Snapple 31 EXHIBIT 6 DCF ANALYSIS (FCFF) FCFF 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E EBIT 1,085.00$ 1,025.00$ 1,024.00$ 1,092.00$ 1,103.00$ 1,178.00$ 1,064.93$ 1,079.93$ 1,092.71$ 1,136.04$ 1,244.24$ Tax 315.00$ 294.00$ 320.00$ 349.00$ (81.00)$ 371.00$ 372.72$ 377.97$ 382.45$ 397.61$ 435.48$ D&A 117$ 127$ 126$ 124$ 115$ 115$ 62$ 69$ 76$ 83$ 89$ -Change in Working Capital NA (454)$ (129)$ 261$ (14)$ 84$ 94$ -$ (5)$ -$ -$ -Capital Expenditure 317 246$ 238$ 217$ 179$ 170$ 200$ 200$ 200$ 200$ 200$ FCFF 1,066.00$ 721.00$ 389.00$ 1,134.00$ 668.00$ 460.26$ 571.20$ 591.59$ 621.44$ 698.10$ WACC 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E D/A 48.19% 40.59% 49.89% 52.30% 52.21% 52.32% 44.21% 37.57% 42.29% 33.06% 38.01% E/A 51.81% 59.41% 50.11% 47.70% 47.79% 47.68% 55.79% 62.43% 57.71% 66.94% 61.99% Cost of debt 8.21% 6.15% 4.22% 4.54% 4.95% 4.34% 5.85% 5.85% 5.85% 5.85% 5.85% Cost of equity 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% WACC 6.76% 6.42% 5.42% 5.40% 5.54% 5.33% 6.19% 6.47% 6.27% 6.67% 6.45% Terminal Value 11,714.18$ FCFF with GGM as TV 460.26$ 536.47$ 523.83$ 512.07$ 9,665.16$ DPS stand along value using FCFF 11,697.80$ Share price 61.93$
  32. 32. Monster Beverage Corporation to acquire Dr Pepper Snapple 32 EXHIBIT 7 RESIDUAL INCOME Valuation Assumptions Risk-free Rate 0.62% Market Risk Premium 13.500% Beta (Adjusted) 0.55 Cost of Equity 8.08% Terminal Growth 2.00% Capitalization Rate 6.08% Valuation Date 12/2/2015 B/S Date 12/31/2014 Days Since 336 Portion of year elapsed 0.9205 Partial Year Adjustment 107.41% Shares Outstanding 188.9 1 2 3 4 5 RIM 1 2015 2016 2017 2018 2019 Terminal Beg. Book Value of Equity (BE) $3,028.60 $3,157.42 $3,275.49 $3,394.77 $3,506.44 $58,825.09 Cost of Equity - r 8.08% 8.08% 8.08% 8.08% 8.08% 8.08% r x BE $244.71 $255.12 $264.66 $274.30 $283.32 $4,753.07 Net Income $608.70 $618.45 $626.76 $654.92 $725.25 $12,167.06 r x BE -$244.71 -$255.12 -$264.66 -$274.30 -$283.32 -$4,753.07 Residual Income (RI) $363.99 $363.33 $362.10 $380.62 $441.93 $7,413.99 Perpetuity with growth $148.28 Payoffs $363.99 $363.33 $362.10 $380.62 $590.21 PV Factor 1.0000 0.9252 0.8561 0.7921 0.7329 PV of Payoffs $363.99 $336.17 $309.98 $301.48 $432.54 $5,433.39 Calculation of Equity Value Beg BE $3,028.60 PV RI $7,177.55 Equity Value - B/S Date $10,206.15 Partial Year Adjustment 107.4% Equity Value at Valuation Date $10,962.92 Shares Outstanding 188.9 Value per Share $58.04
  33. 33. Monster Beverage Corporation to acquire Dr Pepper Snapple 33 EXHIBIT 8 SYNERGIES ANALYSIS Assumptions Shares Outstanding(million) 188.89 WACC 6.410% WACC After Acquisition 5.352% Year 2015 2016 2017 2018 2019 Terminal NPV After tax per share NPV After Acquisition Revenue $107.29 $136.35 $974.05 $730.54 $223.53 $3,487.13 $4,596.12 $15.82 $4,751.24 COGS $71.86 $106.73 $141.60 $176.48 $211.35 $3,297.19 $3,180.20 $10.94 $3,299.78 SG&A $71.62 $91.72 $111.81 $131.91 $152.00 $2,371.29 $2,334.09 $8.03 $2,420.54 Capex $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Sum $250.77 $334.80 $1,227.46 $1,038.92 $586.88 $9,155.62 PV $250.77 $314.63 $1,084.03 $862.26 $457.74 $7,140.98 $10,110.40 $34.79 $10,471.56 Total Synergies $10,110 After Acquistion After Tax Synergies $6,572 $6,806.51 Synergies per share $34.79 $36.03
  34. 34. Monster Beverage Corporation to acquire Dr Pepper Snapple 34 EXHIBIT 9 PREMIUM ANALYSIS16 Announce Date Target Name Acquirer Name Announced Premium (%) 2008/6/11 Anheuser-Busch Cos Inc Anheuser-Busch InBev SA/NV 27.6 2014/1/13 Beam Suntory Inc Suntory Holdings Ltd 25.08 2009/4/20 Pepsi Bottling Group Inc/The PepsiCo Inc 57.78 2010/12/2 Wimm-Bill-Dann Foods OJSC PepsiCo Inc 103.6 2009/4/20 PepsiAmericas Inc PepsiCo Inc 56.22 2006/1/3 Vincor International Inc Constellation Brands Inc 17.21 2010/12/2 Wimm-Bill-Dann Foods OJSC PepsiCo Inc 92.6 2012/7/23 Peet's Coffee & Tea Inc Joh A Benckiser SE 30.75 2008/5/20 China Water & Drinks Inc Nuverra Environmental Solutions Inc -33.4 2010/1/6 San Miguel Corp Top Frontier Holdings Inc 9.01 2005/10/27 Taittinger SA Starwood Capital Group LLC 0.45 2006/8/11 Sleeman Breweries Ltd Sapporo Holdings Ltd 23.66 2008/10/2 Lebedyansky JSC PepsiCo Inc,Pepsi Bottling Group Inc/The 1.98 2005/7/8 Cruzan International Inc V&S Vin & Sprit AB 10.28 2009/11/23 Diedrich Coffee Inc Keurig Green Mountain Inc 34.85 AVERAGE PREMIUM 34.74 16 Note that 34.74% is the average premium of selected transactions, which were not in 2008 or 2009. Those invalid transaction data are in rectangles
  35. 35. Monster Beverage Corporation to acquire Dr Pepper Snapple 35 EXHIBIT 10 BIBLIOGRAPHY OF DPS BOARD OF DIRECTORS Name Age Position Year to join Larry D. Young 60 Director, President and CEO 2007 Wayne R. Sanders 67 Chairman of Board and Lead Independent Director 2008 Pamela H. Patsley 58 Independent Director 2008 Joyce M. Roche 68 Independent Director 2011 David E. Alexander 61 Independent Director 2011 Dunia A. Shive 54 Independent Director 2014 Antonio Carrillo 48 Independent Director 2015 Ronald G Rogers 66 Independent Director 2008 M. Anne Szostak 64 Independent Director 2008 Ave. Age 60.67
  36. 36. Monster Beverage Corporation to acquire Dr Pepper Snapple 36 EXHIBIT 11 OWNERSHIP INFORMATION AND THEIR SHARE IN PERCENTAGE Top Institutional Holders Holder Shares % Out Value* Reported Vanguard Group, Inc. (The) 16,874,198 8.93 1,333,905,402 Sep 30, 2015 Cedar Rock Capital Limited 12,143,497 6.43 959,943,474 Sep 30, 2015 JP Morgan Chase & Company 8,722,884 4.62 689,544,006 Sep 30, 2015 State Street Corporation 8,307,316 4.4 656,693,354 Sep 30, 2015 BlackRock Institutional Trust Company, N.A. 6,230,737 3.3 492,539,778 Sep 30, 2015 Fundsmith LLP 3,553,749 1.88 280,923,869 Sep 30, 2015 AllianceBernstein, L.P. 3,202,520 1.7 253,159,215 Sep 30, 2015 Ameriprise Financial, Inc. 3,166,622 1.68 250,321,478 Sep 30, 2015 BlackRock Fund Advisors 3,133,342 1.66 247,690,694 Sep 30, 2015 JANUS CAPITAL MANAGEMENT, LLC 3,081,298 1.63 243,576,616 Sep 30, 2015
  37. 37. Monster Beverage Corporation to acquire Dr Pepper Snapple 37 EXHIBIT 11 OWNERSHIP INFORMATION AND THEIR SHARE IN PERCENTAGE (CONTINUED)
  38. 38. Monster Beverage Corporation to acquire Dr Pepper Snapple 38 OTHER VALUATION ASSUMPTIONS B/S Date 2014/12/31 Days Since 336 Portion of year elapsed 0.9205 Shares Outstanding(2015) 188.9 Millions Beverage Concentrates(2015-2019) 2%,1.75%,1.5%,1.25%,1% Packaged Beverages(2015-2019) 2%,2%,2%,1%,1% Latin America Beverages(2015-2019) 5%,5%,4%,4%,3% Cost of Goods Sold(2015-2019) 42%,42%,42%,41.5%.40% SG&A(2015-2019) 40%,40%,40%,40%,40% Depreciation & Amort.(2015-2019) 5.41%,5.41%,5.41%,5.41%,5.41% %Tax Rate(2015-2019) 35%,35%,35%,35%,35% Capex(2015-2019) 200,200,200,200,200 Weighted Avg. Basic Shares Out.(2015-2019) 188.89,179.74,172.36,164.98,157.6 Payout Ratio %(2015-2019) 43.36%,43.36%,43.36%,43.36%,43.36% Valuation Date 12/06/2015 Capitalization Rate 6.08%
  39. 39. Monster Beverage Corporation to acquire Dr Pepper Snapple 39 REFERENCE 1. "Dr Pepper Snapple Group Inc (NYSE:DPS) Beneish M-Score." GORUFOCUS. GORUFOCUS, 17 Aug. 2014. Web. 5 Dec. 2015. <http://www.gurufocus.com/term/mscore/NYSE:DPS/Beneish+M-Score/Dr Pepper Snapple Group Inc>.

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