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Keurig Added to Coffee Empire of European Investor Group

Credit...Andrew Sondern/The New York Times

Leslie Picker and

A billionaire European family is on a caffeine-fueled binge to roll up the global coffee industry, with a huge bet announced Monday: a $13.9 billion acquisition of Keurig Green Mountain.

The all-cash deal, offering an eye-popping premium of 78 percent, took analysts and investors by surprise. Keurig has lately had its share of challenges, facing a saturated market for its single-serving coffee brewers, sluggish sales of pods and a stalled new product.

But the JAB Holding Company — the investment arm of the Reimann family, heirs to the German consumer goods company, Joh. A. Benckiser GmbH — is in year three of its quest to dominate the global coffee industry. Keurig, which commands a large majority of the single-serve market in the United States, was a natural next step for the Reimanns.

JAB will lead an investor group to acquire Keurig for $92 a share in cash, according to a statement on Monday. The deal joins JAB’s collection of others, including a controlling stake in Jacobs Douwe Egberts, a coffee conglomerate that owns international brands like Bach Espresso and Bravo. It also has a controlling stake in Peet’s Coffee & Tea, which bought Stumptown Coffee Roasters this year, as well as Espresso House and Baresso Coffee A/S.

“Keurig Green Mountain represents a major step forward in the creation of our global coffee platform,” said Bart Becht, the chairman of JAB in Monday’s statement. “Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee and technology strength and continue to serve all its partners to the best of its abilities.”

Having so many coffee businesses under one umbrella could be worth the rich price paid for Keurig, said Bill Chappell, an analyst with SunTrust Robinson Humphrey. He compared JAB’s strategy with the one successfully employed by the Brazilian-backed investment firm 3G Capital in its acquisitions of H. J. Heinz and Kraft Foods.

Others compared what JAB is doing in coffee with what Anheuser-Busch InBev has done in beer.

“Only a group that wants to dominate the world would pay so much for such a weak player,” Erik Gordon, a professor at the University of Michigan, said of the offer for Keurig.

JAB is not just coffee. It owns a controlling stake in Coty, which owns brands like OPI nail polish and Adidas body care. The investment firm also holds a controlling stake in the shoe designers Jimmy Choo and Bally.

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A Stumptown coffee shop in Manhattan. JAB Holding has a controlling stake in Peet’s Coffee & Tea, which owns Stumptown.Credit...Evan Sung for The New York Times

Still, it is in coffee that it sees a huge opportunity. In the United States, new coffee businesses are springing up at a fast clip, and new ways of making coffee like cold brew and the Clover method are helping keep it attractive to consumers.

Roasters and independent coffee owners credit Starbucks for having first hooked Americans on better coffee and then educating them on it. The average American today knows whether she likes a dark or light roast, and more and more consumers understand the difference between a single-varietal coffee and a blend.

Lately, several boutique coffee businesses have been cashing in. La Colombe, for example, recently sold a stake to Hamdi Ulukaya, the founder of Chobani, who sees an opportunity to expand the brand into the consumer packaged goods space.

Peet’s, which when JAB had acquired it in 2012 seemed like a brand in decline, has suddenly taken off the gloves, hiring an executive from PepsiCo and unabashedly taking aim at Starbucks.

This year, Peet’s acquired control of Stumptown from TSG Consumer Partners, a private equity firm. Recently Peet’s bought a majority stake in Intelligentsia Coffee, another craft coffee business.

Those investments can now be leveraged through Keurig, which will give Peet’s a platform for getting its coffee brands into the market for single-serve coffees.

The deal on Monday raises the stakes for Nespresso, which has dominated the high end of the single-serve coffee business. It also changes the game for Starbucks, which originally allied with Keurig — until it started its own single-serve coffee machine, Verismo. (Starbucks continues to make pods that are compatible with Keurig).

Keurig needed Starbucks coffee pods for its machines too much to drop the brand. But Peet’s will be able to offer a wide range of coffee for use on its machines, like Caribou, Peet’s and Intelligentsia.

Leveraging those brands as well as JAB’s others from outside the United States could help Keurig reverse volume declines within its pods. The company operates with a so-called razor-blade model, where it makes higher margins on the pods than the overall machines.

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Keurig invested $100 million on a Kold machine to make soda, but sales are slow.Credit...Karsten Moran for The New York Times

In the face of declining sales and posting a disappointing outlook, Keurig needed to find new avenues for growth. The company invested $100 million on a Kold machine to make soda. The product, though, has been off to a slower start than was expected.

Those weaknesses may be fixed by JAB, given its know-how in the coffee world and ability to turn the business around out of the public eye, said Phil Terpolilli, an analyst with Wedbush Securities.

The Keurig deal is a boon to the company’s largest shareholder, Coca-Cola, which owns about a 17 percent stake.

“The Coca-Cola Company is fully supportive of this transaction,” Muhtar Kent, Coca-Cola’s chief executive, said in a statement. “We look forward to working with JAB, an experienced operator with a successful track record of investing in and growing consumer companies.”

On the other side of the coin, David Einhorn, who has waged a four-year on-again, off-again bet against Keurig Green Mountain, disclosed in October that he had a new short on the company.

Keurig Green Mountain’s stock price has had a roller-coaster ride. From a low of $17.49 in July 2012, it surged to $157.10 in November 2014. This year, however, the shares were down 61 percent before Monday’s announcement.

On Monday, the shares closed up nearly 72 percent, at $88.89.

Some investors are hoping for more.

Eminence Capital, a hedge fund that has a long position in Keurig Green Mountain, said in a statement that it would not be surprised to see other bids at a higher price.

“We are pleased that Keurig Green Mountain is realizing immediate value for its shareholders and would support a transaction at this price if a vote was brought to us as a shareholder,” said Ricky Sandler of Eminence Capital in an emailed statement. “That said, we believe there is significantly more value inherent in the Keurig hot and cold franchises than $92 per share.”

JAB is acquiring Keurig along with several firms that are already investors in Jacobs Douwe Egberts. These co-investors include Mondelez International and BDT Capital Partners.

Keurig would continue operating as an independent company, with its headquarters in Waterbury, Vt.

The transaction is expected to close in the first quarter of 2016.

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Grabbing Another Cup. Order Reprints | Today’s Paper | Subscribe

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