(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.
JAB had long been eyeing Keurig as an acquisition target as it moved aggressively to build its presence in all aspects of the coffee business, from bagged coffee to cafes, a source familiar with the situation said.
Keurig leads the $6.1 billion North American single-serve coffee market with a 61 percent market share, according to market research firm Euromonitor International. Nestle has only a small presence in that business.
JAB also owns two Nordic coffeehouse chains as well as Caribou Coffee and Peet's Coffee & Tea in the United States, where the market is dominated by Starbucks. Speculation has even surfaced that JAB might be interested in Dunkin' Donuts, which has a loyal following for its coffee.
Three senior partners run JAB, and its ambitions in coffee may be modeled partly upon the global strength of acquisitive brewer Anheuser-Busch InBev, where JAB senior partner Olivier Goudet serves as chairman and JAB senior partner Peter Harf was formerly chairman.
JAB in July completed the formation of a joint venture called Jacobs Douwe Egberts, now the largest pure-play coffee company by volume, combining its D.E. Master Blenders 1753 business with the coffee business of Mondelez International Inc.
It still trails Nestle in global market share by retail value, with Nestle accounting for 22.7 percent of the $81 billion coffee market and Jacobs Douwe Egberts another 16.3 percent, based on 2013 data according to Euromonitor.
Other major JAB holdings include controlling stakes in cosmetics company Coty Inc and luxury goods maker Jimmy Choo.
Coca-Cola Co, Keurig's biggest single shareholder, said it would receive cash for its 17.4 percent stake in the Vermont-based company for a net gain of $25.5 million on its investment. Coke bought a 10 percent stake in Keurig last year and added to its holding this year.
Keurig has partnered with Coke and Dr. Pepper Snapple Group Inc on branded pods for its Kold machine.
Coke's shares were little changed at $43.20. The Atlanta-based company said in a statement that it expected to continue to collaborate with JAB on pods for Kold.
While Coke has acquired companies in the past after buying a minority stake, Sanford Bernstein analyst Ali Dibadj said he was not surprised that this did not happen with Keurig.
The soda maker is mainly interested in Keurig's cold beverage business, he said. "It really makes more sense for someone with coffee experience to take this one on."
Shares of at-home cold beverage maker SodaStream International Ltd rose 10.6 percent to $15.51.
Susquehanna Financial Group analyst Pablo Zuanic attributed the rise to the "apparent vanishing of the (Coca-Cola) threat in at-home cold drink solutions." But he said he doubted a buyer would emerge for SodaStream unless PepsiCo Inc was interested.
JAB is acquiring Keurig in partnership with investors that are shareholders in Jacobs Douwe Egberts, including Mondelez and entities affiliated with BDT Capital Partners.
The deal is expected to close in the first quarter of 2016. Keurig Green Mountain will be privately owned and operated independently by the company's management team. Its headquarters will remain in Waterbury, Vermont.
BofA Merrill Lynch and Credit Suisse provided fairness opinions to Keurig.
Writing by Cynthia Osterman; Additional reporting by Martinne Geller in London and Lauren Hirsch in New York; Editing by Saumyadeb Chakrabarty, Michele Gershberg, Lisa Von Ahn and Steve Orlofsky