Dr Pepper Snapple Group Inc is in talks to acquire Bai Brands LLC, people familiar with the matter said on Wednesday, a move that would break its track record of only investing small stakes in growth drinks brands.
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The talks come after Reuters reported on Oct. 3 that Bai was exploring a sale, sending Dr Pepper Snapple shares lower on concerns that its distribution of Bai would be jeopardized if sold to a rival such as Coca-Cola Co and PepsiCo Inc .
Dr Pepper Snapple is just one of the companies that the antioxidant drink brand is talking to ahead of bids being submitted in an auction for the company, and there is no certainty it will prevail with its bid, the people said. Dr Pepper Snapple may be willing to value Bai at more than $1.5 billion, one of the people said.
The sources asked not to be identified because the matter is confidential. Dr Pepper Snapple declined to comment. Bai did not immediately respond to a request for comment.
Bai, which means "pure" in Mandarin Chinese, sweetens its drinks with plant-based ingredients and infuses them with antioxidants from coffee fruit and white tea. It was founded in 2009 by entrepreneur Ben Weiss, who still owns a majority of the company.
Dr Pepper Snapple has not made a major acquisition since being spun out of Britain's confectionary company Cadbury Schweppes in 2008, but is now reconsidering its stance as the soft drinks industry grapples with increasingly health-conscious consumers.
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Dr Pepper Snapple has owned a minority stake in Princeton, New Jersey-based Bai since last year. It is one of Dr Pepper Snapple's "Allied Brands," which are healthy drink companies that it distributes through its network.
The young companies benefit from Dr Pepper Snapple's reach, while the Plano, Texas based-soda company benefits from a boost to its distribution network. Other Allied Brands of Dr Pepper Snapple include Fiji Water and Vita Coco.
Unlike some of its big soda competitors, Dr Pepper Snapple has traditionally not viewed its small equity investments as a path to an outright acquisition.
In 2007, one of Dr Pepper Snapple's minority investments, Vitaminwater-maker Glaceau, was sold to Coca-Cola for $4.1 billion. Dr. Pepper Snapple, however, has expressed concerns over how expensive such deals can be.
"Some of these (valuation) multiples out there are ridiculous. I love these young entrepreneurs, but they all want to have the next Glaceau deal," Dr. Pepper Snapple CEO Larry Young said in 2014.
(Reporting by Lauren Hirsch in New York; editing by Diane Craft)