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 The transaction, pitched at a rich 78 percent premium to Keurig's
Friday closing price, would be the biggest coffee acquisition by
JAB, the investment vehicle of Germany's billionaire Reimann family,
as it tries to become a formidable competitor to world coffee market
leader Nestle SA.
For Luxembourg-based JAB, the deal for the maker of K-Cup coffee
pods “is a fantastic opportunity for them to be really a global
player in the coffee market. Now they can have some scale in the
U.S.," said Vontobel analyst Jean-Philippe Bertschy.
The price represents a "demanding valuation" of about 15 times
Keurig's earnings before interest, taxes, depreciation and
amortization (EBITDA), he said. The stock was trading around eight
times EBITDA last week, Bertschy said.
Keurig has struggled with declining sales because of increased
competition and slower-than-expected adoption of its newer 2.0
brewing machines because of consumers' confusion over which brands
could be used with the devices.
Analysts have also questioned the growth prospects for the company's
latest countertop device, a single-serve cold drink maker called
Keurig Kold, citing its high price and a disappointing rollout.
As a result, shares of Keurig had lost more than 60 percent of their
market value this year up to Friday's close. On Monday, the stock
closed up 72 percent at $88.89, but still remained below JAB's offer
price of $92 per share.
The increase represented a blow to influential investor David
Einhorn of Greenlight Capital and other short-sellers, who hold
nearly 13 percent of the total Keurig float in a bet the shares
would fall further.
COFFEE POWERHOUSE
JAB had long been eyeing Keurig as an acquisition target as it moved
aggressively to build its presence in all aspects of the coffee
business, from bagged coffee to cafes, a source familiar with the
situation said.
Keurig leads the $6.1 billion North American single-serve coffee
market with a 61 percent market share, according to market research
firm Euromonitor International. Nestle has only a small presence in
that business.
JAB also owns two Nordic coffeehouse chains as well as Caribou
Coffee and Peet's Coffee & Tea in the United States, where the
market is dominated by Starbucks. Speculation has even surfaced that
JAB might be interested in Dunkin' Donuts, which has a loyal
following for its coffee.
Three senior partners run JAB, and its ambitions in coffee may be
modeled partly upon the global strength of acquisitive brewer
Anheuser-Busch InBev, where JAB senior partner Olivier Goudet serves
as chairman and JAB senior partner Peter Harf was formerly chairman.
JAB in July completed the formation of a joint venture called Jacobs
Douwe Egberts, now the largest pure-play coffee company by volume,
combining its D.E. Master Blenders 1753 business with the coffee
business of Mondelez International Inc.
It still trails Nestle in global market share by retail value, with
Nestle accounting for 22.7 percent of the $81 billion coffee market
and Jacobs Douwe Egberts another 16.3 percent, based on 2013 data
according to Euromonitor.
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Other major JAB holdings include controlling stakes in cosmetics
company Coty Inc and luxury goods maker Jimmy Choo.
COKE'S EXIT
Coca-Cola Co, Keurig's biggest single shareholder, said it would
receive cash for its 17.4 percent stake in the Vermont-based company
for a net gain of $25.5 million on its investment. Coke bought a 10
percent stake in Keurig last year and added to its holding this
year.
Keurig has partnered with Coke and Dr. Pepper Snapple Group Inc on
branded pods for its Kold machine.
Coke's shares were little changed at $43.20. The Atlanta-based
company said in a statement that it expected to continue to
collaborate with JAB on pods for Kold.
While Coke has acquired companies in the past after buying a
minority stake, Sanford Bernstein analyst Ali Dibadj said he was not
surprised that this did not happen with Keurig.
The soda maker is mainly interested in Keurig's cold beverage
business, he said. "It really makes more sense for someone with
coffee experience to take this one on."
Shares of at-home cold beverage maker SodaStream International Ltd
rose 10.6 percent to $15.51.
Susquehanna Financial Group analyst Pablo Zuanic attributed the rise
to the "apparent vanishing of the (Coca-Cola) threat in at-home cold
drink solutions." But he said he doubted a buyer would emerge for
SodaStream unless PepsiCo Inc was interested.
JAB is acquiring Keurig in partnership with investors that are
shareholders in Jacobs Douwe Egberts, including Mondelez and
entities affiliated with BDT Capital Partners.
The deal is expected to close in the first quarter of 2016. Keurig
Green Mountain will be privately owned and operated independently by
the company's management team. Its headquarters will remain in
Waterbury, Vermont.
BofA Merrill Lynch and Credit Suisse provided fairness opinions to
Keurig.
(Writing by Cynthia Osterman; Additional reporting by Martinne
Geller in London and Lauren Hirsch in New York; Editing by Saumyadeb
Chakrabarty, Michele Gershberg, Lisa Von Ahn and Steve Orlofsky)
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