Shares of Green Mountain <GMCR.O> soared 42 percent to $114.85 in
extended trading, while those of its likely new rival, SodaStream
International Ltd <SODA.O>, retreated 3.9 percent to $34.39.
Under their 10-year agreement, the companies will collaborate on the
development and introduction of Coca-Cola products on Green
Mountain's upcoming machine that will serve both carbonated and
non-carbonated beverages, including soft drinks, tea and juice.
Green Mountain's Keurig machine popularized the use of pods — small
packets containing everything from coffee, tea or hot chocolate
powder — for easy, in-home, one-cup brewing of hot drinks. The
company has sold more than 30 million Keurig machines around the
world for use in homes, offices and other locations.
The deal will make Green Mountain the global exclusive partner for
the production and sale of Coke's branded single-serve, pod-based
cold beverages, the companies said.
Still, Green Mountain also retains the option to sign deals with
other cold drink makers, President and Chief Executive Brian Kelley
That includes Coke rival PepsiCo Inc <PEP.N>, which last year shot
down rumors it planned to buy SodaStream. A spokesman for Pepsi
declined comment for this article.
"We'll do deals with brands consumers love," said Kelley, who added
that Green Mountain has coffee deals with most major chains,
including Starbucks <SBUX.O> and Dunkin' Donuts <DNKN.O>.
"We are really excited to start with Coca-Cola," said Kelley, who
came to Green Mountain from the world's largest soda maker, where he
was viewed as a product-savvy executive with expertise in product
and supply chain management.
Green Mountain's cold drink machine is scheduled to debut in fiscal
2015, which begins in October this year.
Coca-Cola CEO Muhtar Kent said on the call that the deal would give
his company access to new business opportunities. He added that it
would enhance Coca-Cola's bottling system and that its bottlers
would have a complimentary role.
"This gives Green Mountain a beverage partner with some hugely
powerful global brands. For Coke, it gives them access to some
really cool, new cutting-edge pod cold-beverage technology," said
John Sicher, editor and publisher of Beverage Digest.
Sicher said soda sales in the United States have been in decline
since 2005, while growth in pod-based coffee brewing has boomed.
Under the terms of the agreement, Coca-Cola will acquire roughly
16.7 million newly issued shares of Green Mountain. The new shares
have been priced at $74.98, which represents the trailing
50-trading-day volume weighted average price as of market close.
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Coca-Cola has the option to increase its minority stake up to 16
percent through open market purchases of Green Mountain common stock
during the first 36 months, a spokesman for the Coca-Cola said.
The significant after-hours move in Green Mountain's stock
appeared to be a classic short squeeze as traders who bet against
the stock scrambled to cover their positions.
David Einhorn, who runs hedge fund Greenlight Capital Inc., was
among investors with short positions in Green Mountain as of October
15. Greenlight's spokesman declined to comment to Reuters on
The most recent data from Nasdaq, which dates to January 15, had
short interest in Green Mountain at about 25 percent of shares
outstanding — about 37.6 million shares. That's lower than peak
short interest in November 2012, when more than 51 million shares
were being shorted.
The average consumer staples company has just 1.6 percent of shares
held short, according to Thomson Reuters Starmine.
Green Mountain separately reported better-than-expected quarterly
profit on Wednesday.
The Waterbury, Vermont-based company said net income rose 28 percent
to $138.2 million, or 91 cents per share, for the fiscal first
quarter ended December 28.
On an adjusted basis, the company earned 96 cents per share — 6
cents better than analysts on average had expected, according to
Thomson Reuters I/B/E/S.
Net sales rose almost percent to $1.39 billion.
Green Mountain also plans to launch a new hot drink brewing system
this fall. Called Keurig 2.0, it will use both single-serve K-Cups
and larger-sized K-Carafe packs that brew 28 ounces of coffee.
(Additional reporting by Martinne Geller
in London and David Gaffen and Jennifer Ablan in New York; editing
by Steve Orlofsky and Ken Wills)
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