By Annie Gasparro
JAB Holding Co. said it is buying Keurig Green Mountain Inc. for
$13.9 billion, adding the U.S. pioneer of single-serve coffee to
the European investment firm's expanding global empire.
Closely held JAB agreed to pay a 78% premium for Keurig's
shares, which have fallen sharply over the past year amid troubled
product launches and other challenges. That represents the
second-highest premium paid this year among deals valued over $1
billion, according to Dealogic.
It also renders profitable makes JAB a savior of sorts for
Keurig and its largest shareholder Coca-Cola Co., rendering
profitable a stake that had been worth far less than the beverage
giant paid.
The acquisition, announced Monday, is a major doubling down on
coffee for JAB, which manages the money of one of Germany's
wealthiest families, the Reimanns. The investment firm, which also
owns other assets including luxury brands Bally and Jimmy Choo PLC
and beauty-products maker Coty Inc., is betting that adding
Keurig's technology and its reach in the U.S. can make it a
stronger rival to competitors including Nestlé SA, the world's
largest packaged-coffee company.
Keurig has about 20% of the market for packaged coffee in the
U.S., according to Euromonitor International Inc.--although it
shares some revenue with brands like Starbucks Corp. whose coffee
it packages into its K-Cups. Stifel Capital Markets estimated that
adding Keurig would increase JAB's share of the $80 billion global
market for packaged coffee to a mid-to-high-teens percentage,
compared with a mid-20s percentage for Nestlé.
Buying Keurig could help JAB further its mission to become "the
Bud(weiser) of the coffee space," said Susquehanna Financial Group
analyst Pablo Zuanic.
JAB said little about its plans beyond a statement announcing
the deal, in which Chairman Bart Becht said the deal "represents a
major step forward in the creation of our global coffee platform."
He said Keurig is "a fantastic company that uniquely brings
together premium coffee brands" and its single-serve technology for
machines and pods. Keurig will operate as an independent entity
after the deal, he said.
The acquisition follows a string of other coffee-related deals
for JAB. It bought U.S.-based chains Caribou Coffee Co. and Peet's
Coffee & Tea in 2012, then last year acquired the parent
company of Einstein Bros. Bagels. This year JAB acquired two
upscale, niche players in the U.S., Stumptown Coffee Roasters and
Intelligentsia Coffee Inc.
JAB, this year, also merged its D.E. Master Blenders brand with
the international coffee business of U.S. snack-food giant Mondelez
International Inc.
Analysts said JAB could see opportunity to expand Keurig's
brewers to Europe, where it doesn't yet compete with pod-based
brewers like Nestlé's Nespresso.
Euromonitor beverage analyst Virginia Lee said taking Keurig
private also will let it "make adjustments to its marketing and
product development strategy away from the scrutiny of the
investment community."
Other aspects of JAB's strategy are less clear, such as how it
will leverage the added scale in the coffee industry from Keurig
for purchasing or other synergies.
And Mark Astrachan, an analyst at Stifel, said Keurig's joining
JAB could pose a risk to contacts Keurig has with major brands like
Starbucks to make K-Cup pods under their brands, since those
companies compete with some owned by JAB.
The deal values Keurig at $92 a share, compared with its Friday
close of $51.70. The surprise acquisition caught out some investors
who had bet on Keurig's poor performance continuing by borrowing
its shares to sell them short. The stock had fallen 67% as of
Friday from its all-time closing high of $157.10 in November
2014.
Keurigs's coffee pods and single-serve machines redefined the
U.S. market, but by last year, sales were stagnating and
private-label makers of coffee pods were a competitive threat.
Keurig's revenue in the fiscal year that ended Sept. 26 fell 4% to
$4.52 billion, while profit slid 16% to $498 million.
Chief Executive Brian Kelley, a former Coke executive, bet on a
new brewing system called Keurig 2.0 launched last year that brew
different-sized pots and specialty drinks. Sales of the new
machines have disappointed, Keurig has said.
Mr. Kelley also pushed the development of a machine, dubbed
Kold, that makes carbonated beverages in the kitchen and competes
with SodaStream International Ltd. That enticed Coke, which built a
17.4% stake in Keurig and joined with with it on Kold's launch in
late September, selling pods for the machine from Coke brands.
Coke said it paid about an average of $91 a share for its Keurig
investment, meaning its stake was about $1 billion underwater as of
Friday. The acquisition by JAB would enable Coke to reap a $25
million gain.
Cashing out gives Coke more funds to make other acquisitions or
return cash to shareholders. But it also represents an unwinding of
one of Coke's biggest bets in recent years. Coke Chief Executive
Muhtar Kent called the Kold machine, a "real game-changing"
innovation when Coke announced its 10-year Keurig partnership in
February 2014.
Since then, many analysts have cooled on Kold, saying it is too
bulky and expensive. Brian Holland, an analyst at Consumer Edge
Research, said Keurig let expectations get too high for Kold.
Building up that business is going to take years, "and the investor
scrutiny that this company faces was going to make it difficult for
them to keep their eye on that long-term strategy."
Mr. Kent said Monday that Coke will continue its collaboration
with JAB on single-serve, pod-based machines like Kold, saying JAB
is "an experienced operator with a successful track record of
investing in and growing consumer companies."
Mike Esterl and Anne Steele contributed to this article.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
December 07, 2015 18:25 ET (23:25 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Keurig Green Mountain, Inc. (NASDAQ:GMCR)
Historical Stock Chart
From May 2024 to Jun 2024
Keurig Green Mountain, Inc. (NASDAQ:GMCR)
Historical Stock Chart
From Jun 2023 to Jun 2024