Share price of Mondelez International, Inc. MDLZ moved up 1% on Friday after it announced plans to sell its interest in a Japanese coffee joint venture to its partner Ajinomoto Co., Inc. for pre-cash tax proceed of 27 billion yen.
Mondelez currently own a 50% stake in the joint venture — Ajinomoto General Foods, Inc. — which manufactures instant, ground and liquid coffee products as well as other drinks. The transaction is expected to close by Apr 2015.
Mondelez is in the process of divesting the majority of its coffee portfolio to focus more on its core snacks business. Last May, Mondelez announced the proposed spin-off of its coffee business to the Netherlands-based coffee company, D.E Master Blenders 1753, for $5 billion in cash.
Mondelez’s and D.E Master Blenders’ coffee portfolios will be merged to form a new Dutch coffee company called Jacobs Douwe Egberts (JDE). The transaction, which excludes Mondelez’s coffee business in France, is expected to close this year. Mondelez will enjoy a 49% stake in the combined company.
The deal is expected to allow Mondelez to enhance growth by concentrating on its core snacks portfolio, strengthen cash position and improve margins by cutting supply chain and overhead costs.
The merger will bring together Mondelez’s Jacobs, Carte Noire, Tassimo and other coffee brands and D.E Master Blenders’ popular Douwe Egberts, Pilao and Senseo brands, thereby creating significant revenue synergies.
Mondelez carries a Zacks Rank #4 (Sell) due to its top-line pressures. The company has been reporting disappointing top-line results since it split from Kraft Foods Group, Inc. KRFT in 2012. Snacking category slowdown due to soft global retail and consumer demand hurt its sales.
The category growth is not expected to improve in 2015, while the retail and consumer environment remain challenging.
A couple of better-ranked food stocks are SUPERVALU, Inc. SVU and Flowers Foods, Inc. FLO. Both stocks carry a Zacks Rank #2 (Buy).
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