In 2018, Bob Gamgort—then CEO of coffee K-Pod purveyor Keurig Green Mountain—united hot and cold beverages under the same roof for the first time by merging with soft drink giant Dr Pepper Snapple for nearly $19 billion. The combo thrived during the COVID lockdown as the new Keurig Dr Pepper deployed AI to parse data flowing from in-home brewers to detect early on that families were rushing to stockpile K-Pods in the stay-at-home economy. That detective work hinted that the trend would soon spread to soft drinks. So KDP stockpiled cans and ramped production of its best-selling Dr Pepper and Canada Dry brands while rivals were short of packaging and capacity. Sales soared when folks rushed to load their garages with twelve-packs of their favorite thirst-quenchers.But since that triumph, the highly-original concept of combining hot and cold—based on the conviction that the best strategy meant covering every category of non-alcoholic beverage on a customer’s shopping list—has proven more problematic. While KDP’s sales of refreshment beverages are thriving, the coffee side is proving a drag, and even a distraction for management. In Q2, soft drink revenues leaped 10.7% over the same period last year, while U.S. coffee fell 1.9% and the international “hot” side dipped 3.8%, a blend that held total sales gains in the quarter to 5.5%. The reason for coffee downer: A big jump in the price of beans is hiking K-Pod prices and depressing volumes as customers shift to cheaper bagged ground and instant options.On August 25, KDP announced that it’s en route to splitting the coffee and soft drink franchises, and it appears the main reason isn’t the former’s financial underperformance, which may well reverse given the gigantic global demand for the rich black brew, but an admission that the two businesses aren’t the great synergistic fit originally envisaged. KDP will first purchase centuries-old JDE Peet’s, Europe’s dominant coffee-seller featuring such brands as Jacobs and L’Or, then combine it with the Keurig arm to create a global colossus featuring sales balanced about evenly between Europe and North America hosting annual revenues of nearly $16 billion. Then, KDP will spin off the coffee franchise to its shareholders as an independent enterprise. The remaining business will focus exclusively on soft drinks, a vast portfolio of over 150 brands it either owns distributes or partners alongside, encompassing 7 Up and A&W root beer, Snapple and La Colombe, Schweppes and Hawaiian Punch.KDP’s CEO Tim Cofer, who I profiled this spring for Fortune, also stated that he’s highly bullish on the coffee side, noting that it’s a $400 billion a year product, and the one beverage most people most say they can’t live without. He adds that retail coffee sales have rebounded this year, marking what he views as a turnaround. He also he emphasizes the powerhouse scale that that the new combined coffee companies will enjoy, and that they will bridge the U.S. and European markets.The deal’s the handiwork of veteran marketer and dealmaker Tim CoferThe deal’s architect appears to be Gamgort’s successor, CEO Tim Cofer. Though relatively little-known, Cofer enjoyed a big career at Kraft Foods and Mondelez before taking the helm at KDP in November of 2023. Cofer learned dealmaking under the mentorship of former Mondelez chief Irene Rosenfeld. After Rosenfeld masterminded the merger of Kraft Foods and Europe’s Cadbury, it was Cofer who managed the thorny but successful trans-Atlantic integration of the two chocolate kings that enabled the split of the Kraft Foods into the Kraft grocery and Mondelez snack businesses. Then as chief of Asia for Mondelez, Cofer greatly expanded its footprint in the region by purchasing Vietnam’s largest seller of snacks. Cofer then led Mondelez in North America and though he was the leading internal candidate to succeed Rosenfeld, lost to Belgian-born Dirk Van de Put.During interviews for an in-depth Fortune story on KDP published in June, Cofer detailed his strategy for expanding margins and achieving high growth in soft drinks, a field that overall, just trudges forward. He explained that total volumes for refreshment beverages grow only around 1% a year tracking U.S. population, so putting the fizz in earnings requires achieving a richer mix, selling a higher proportion of offerings that garner extra dollars or cents per can or ounce. Hence, he’s pushing hard into such premium territory as energy, sports hydration, and refreshers to lift margins. His recent $1 billion-plus deal for super-hip energy hit Ghost, led by a blithe group of 20-somethings from Las Vegas, adds big time to a collection that includes female-focused C4, and proudly patriotic chilled Black Rifle Coffee. Cofer’s also scored by offering the first canned “dirty sodas” to capitalize on a social media phenomenon where teens experiment mixing Dr Pepper with the likes of dairy creamers.The JDE Peet’s deal is expensive, but the benefits of specialization should pay offKDP is paying a formidable $18.4 billion for JDE Peet’s, which combines the European coffee business and the Peet’s 250 retail stores in 13 states. The market disliked like the purchase: On August 25, KDP’s stock dropped 11% to around $31, erasing several billion dollars in market cap. But despite investors’ initial harsh reaction, Cofer’s big strategic shift makes sense for KDP. “At the time the Keurig-Dr Pepper merger was announced, it attracted a lot of skepticism,” says Connor Rattigan, an analyst at global data provider Consumer Edge. “Now, we have a tacit admission that the market speculation at the time has proven correct.” Rattigan explains that the coffee and soft drink businesses are so different that it’s hard to find areas where melding the two proves more efficient than operating them separately. In fact, the opposite may be true. For example, the refreshment beverage side benefits greatly from KDP’s direct-store-delivery system where it runs a web of warehouses and operates its own trucks for shipment to retailers. The DSD advantage, says Rattigan, is that KDP can reach all manner of small stores, not just the Walmarts, and that KDP has its own employees physically walking into the stores, and at the same time building strong ties with retailers. But K-Pods, he notes, aren’t sold in local outlets such as 7-11s and delis, they’re shipped mainly to the megastores. Hence, the advantage of DSD for coffee isn’t nearly as great as for soft drinks.Rattigan adds that KDP’s already thriving in refreshment drinks “while management’s spending a significant portion of its time on a totally different business.” He believes a full concentration on the refreshment world of liquids would yield big benefits, especially since KDP enjoys plenty of what he calls “white space,” or scope, for expansion—and not just in energy and sports drinks. “They have lots of room to grow in restaurants, where Coke and Pepsi are extremely dominant,” he says. Gaining share in fast food and other eateries should be highly doable, given that regular Dr Pepper recently surpassed classic Pepsi as America’s best-selling soft drink behind Coke.Cofer helped lift KDP to that milestone. It will take all this master’s dealmaking and marketing skills to prove the market’s wrong, and that the promise of going all-in on one of America’s best panoply of brands can overcome the headwind of a lofty price. This story was originally featured on Fortune.com