--Private-investment group Joh. A. Benckiser agrees to acquire
Peet's
--Deal takes it private following a sharp drop in share
price
--Shares surge above deal's $73.50-per-share price
(Adds analysts' comments, updates share movement, in the second,
seventh through 11th and 13th paragraphs.)
By Joan E. Solsman
Peet's Coffee & Tea Inc. (PEET) agreed to be taken private
in a nearly $1 billion cash acquisition by German investment group
Joh. A. Benckiser, news that jolted shares to their highest level
in months.
Shares in the struggling coffee seller surged 29% to $73.57,
their highest level since the stock started to tumble on a
first-quarter profit miss at the beginning of May, exacerbated by
high coffee costs and soft grocery volumes. In late March, shares
had hit an all-time high of $77.60 only to fall to a nine-month low
less than two weeks ago.
The movement also elevates the share price above the
$73.50-a-share level of the Joh. A. Benckiser's deal, which
indicates investors are speculating another suitor may enter the
fray.
Under the deal, Peet's will continue to be operated by its
current management and employees and will remain based in the San
Francisco Bay area, with its home office in Emeryville, Calif., and
its roast-to-order facility in Alameda, Calif. The deal is expected
to close in about three months.
Peet's Chief Executive Patrick O'Dea said the company's
commitment to high-quality coffees and teas will continue to be its
guiding purpose. Chairman Jean-Michel Valette said JAB's interest
reflected the power of Peet's brand.
"We are pleased that JAB recognizes this and that Peet's
existing shareholders will be rewarded with significant value," Mr.
Valette said in a release.
Peet's products sell at a premium to other brands, even
Starbucks Corp. (SBUX). Analysts said its track record of
preserving its premium branding within specialty coffee, which
remains a growth category, puts Peet's in a desirable strategic
position.
Wedbush Securities analyst Nick Setyan said Starbucks was a
logical suspect for a potential third-party bidder. Besides having
the financial heft to be relevant in a $1 billion deal, Starbucks
has close roots to Peet's. It was the inspiration for Starbucks's
founders, one of whom worked at the company to learn the business,
and was a supplier to the nascent chain in its early years.
More recently, Starbuck's Chairman and Chief Executive Howard
Schultz has referred to Peet's founder as a "spiritual godfather,"
Setyan said, adding that the market believes Starbucks has made
quiet overtures to Peet's in the past.
The nearly $1 billion enterprise value of the JAB agreement
could stoke a competing offer or shareholder objections if it is
seen to underappreciate Peet's growth prospects, Baird Equity
Research analyst David Tarantino said in a note. Peet's has
more-favorable coffee costs on the horizon and the prospect of a
single-cup offering launch, which means the company's earnings
power may be undervalued in the deal, he said. Peet's could appeal
also to Kraft Foods Inc. (KFT) as well as Starbucks, he added.
Peet's has been hindered by not participating in the
fast-growing single-serve market, which is grabbing market share.
In September, Green Mountain Coffee Roasters Inc. (GMCR), which
sells Keurig single-serve coffee brewers and associated K-cup
portion packs, has a number of patents expiring that should ease
the entry of competitors into that market, Wedbush's Mr. Setyan
said.
In addition, coffee prices have begun to ease recently, taking
downside pressure off the bottom line and the stock.
In addition, Peet's is relatively protected from commodity
coffee price volatility, Piper Jaffray analyst Nicole Miller Regan
said. Peet's, as a high-quality bean purveyor, buys specialty beans
more so than exchange-traded coffee. While the input costs follow
the same tack, they enjoy more insulation.
Joh. A. Benckiser is the investment vehicle for Germany's
Reimann family, which, among other holdings, owns perfume maker
Coty Inc. That business is planning a U.S. initial public offering
after earlier failing in its bid to acquire struggling Avon
Products Inc. (AVP). Joh. A. Benckiser also owns a large stake in
Reckitt Benckiser Group PLC (RB.LN, RBGPY), a household-products
powerhouse whose brands include Lysol, Woolite and French's
mustard.
Joh. A. Benckiser is focused on long-term investments in the
broader consumer-goods category. The group's portfolio also
includes a minority investment in D.E Master Blenders 1753. The
group also owns Labelux Group GmBH, a luxury-goods company with
brands such as Jimmy Choo, leather-accessories brand Bally and
Belstaff.
In addition to Joh. A. Benckiser, Chicago-based merchant bank
BDT Capital is participating in the transaction as an adviser and
minority investor.
--Saabira Chaudhuri contributed to this article.
Write to Joan Solsman at joan.solsman@dowjones.com.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires