JAB-led investor group to buy K-Cup maker Keurig for $13.9 billion

Mon Dec 7, 2015 5:11pm EST
 
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By Anjali Athavaley and Sruthi Ramakrishnan

(Reuters) - Europe's JAB Holding Co is leading a $13.9 billion buyout of Keurig Green Mountain Inc in a deal that would give it 60 percent control of North America's single-serve coffee market and advance its ambitions to build a global coffee powerhouse.

The transaction, pitched at a rich 78 percent premium to Keurig's Friday closing price, would be the biggest coffee acquisition by JAB, the investment vehicle of Germany's billionaire Reimann family, as it tries to become a formidable competitor to world coffee market leader Nestle SA.

For Luxembourg-based JAB, the deal for the maker of K-Cup coffee pods “is a fantastic opportunity for them to be really a global player in the coffee market. Now they can have some scale in the U.S.," said Vontobel analyst Jean-Philippe Bertschy.

The price represents a "demanding valuation" of about 15 times Keurig's earnings before interest, taxes, depreciation and amortization (EBITDA), he said. The stock was trading around eight times EBITDA last week, Bertschy said.

Keurig has struggled with declining sales because of increased competition and slower-than-expected adoption of its newer 2.0 brewing machines because of consumers' confusion over which brands could be used with the devices.

Analysts have also questioned the growth prospects for the company's latest countertop device, a single-serve cold drink maker called Keurig Kold, citing its high price and a disappointing rollout.

As a result, shares of Keurig had lost more than 60 percent of their market value this year up to Friday's close. On Monday, the stock closed up 72 percent at $88.89, but still remained below JAB's offer price of $92 per share.

The increase represented a blow to influential investor David Einhorn of Greenlight Capital and other short-sellers, who hold nearly 13 percent of the total Keurig float in a bet the shares would fall further.   Continued...

 
A single-serve Keurig Green Mountain brewing machine is seen before dispensing coffee in New York February 6, 2015.   REUTERS/Shannon Stapleton