Keurig Green Mountain Inc. GMCR has entered into a merger agreement and agreed to sell itself to an investor group led by JAB Holding Company (‘JAB’), a Luxembourg based private company, for $13.9 billion. Shares of Keurig surged 72% following the announcement of the deal.
JAB is acquiring Keurig Green Mountain in partnership with strategic minority investors who are already shareholders in Jacobs Douwe Egberts B.V. (“JDE”), including Mondelez International, Inc. MDLZ and entities affiliated with BDT Capital Partners.
Per the terms of the deal, Vermont-based Keurig will receive $92.00 per share in cash from JAB, which represents a rich 80% premium to Keurig's closing stock price on Dec 4. The agreement has been unanimously approved by Keurig's board. The Coca-Cola Co. KO, which owns a minority stake of 17% in Keurig Green Mountain, also approved the transaction. The transaction is expected to close in the first quarter of 2016.
After the closure of the deal, Keurig Green Mountain will be privately owned and continue to operate independently. It will continue to remain headquartered in Waterbury, VT.
Keurig Green Mountain is best known for its single-cup at home coffee maker machines. It recently launched a single-cup cold carbonated beverage maker. The acquisition of Keurig will boost the already enriched portfolio of JAB Holding, whose coffee portfolio includes a majority stake in Peet's Coffee & Tea, Caribou Coffee Company, and Jacobs Douwe Egberts, among other leading brands. It will help the company to become a global player in the coffee market and have some scale in the U.S., as Keurig leads the $6.1 billion North American single-serve coffee market with a 61% market share, according to market research firm Euromonitor International.
In fact, it will help advance its ambitions to build a global coffee powerhouse. As per reports, JAB Holdings is planning to challenge global leader Nestle SA in the coffee industry. Thus, this conglomerate may be followed by other deals, such as the takeover of Dunkin’ Brands Group Inc. DNKN, as per Bloomberg.
We note that JAB Holding also has stakes in beauty products maker Coty and high-end shoe seller Jimmy Choo.
The deal is quite attractive for Keurig and provides significant cash value for its shareholders, who have seen the stock fall nearly 61% since the beginning of the year. We note that Keurig has been posting weak results and witnessing sluggish growth for quite some time. Keurig has suffered from waning sales because of increased competition and slower-than-expected adoption of its newer 2.0 brewing machines, primarily due to consumers' confusion over which brands could be used with the devices. Reportedly, the rollout of the cold brewer Keurig Kold has also been slower than expected. A stronger dollar has been hampering international sales. In such a scenario, the plan to go private seems a good decision.
Keurig Green Mountain carries a Zacks Rank #3 (Hold).
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