Keurig sold for $14bn to private equity firm

February 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

An investment group led by private equity firm JAB Holding Co agreed a deal to acquire Keurig Green Mountain in a deal worth $13.9bn.

According to a statement, the investment group will pay $92 per share in cash to acquire the company – a premium of 78 percent over Keurig’s closing stock price on 4 December, the last trading day before the deal was announced.

JAB is leading an investment group made up of strategic minority investors who already have a holding in the global coffee trade. Indeed, the purchasers include the backers of Netherlands based Jacobs Douwe Egberts, a global tea and coffee company formed in 2014 as the combination of the coffee franchises of Oreo-maker Mondelez International and D.E Master Blenders.

The move for Keurig is a surprising one in many respects; the company has struggled recently in the face of a greatly saturated market. Sale of the company’s coffee ‘pods’ have struggled and new product lines have also performed poorly. Keurig’s revenue fell 13 percent to $1.04bn in the fourth quarter of 2015. The company experienced a 9 percent drop in the sale of pods, which represented 83 percent of the company’s revenue for the quarter. The firm also endured a 32 percent drop in the sale of brewers and accessories.

Brian Kelley, president and chief executive of Keurig Green Mountain, commented: “This transaction will deliver significant cash value for our shareholders and offers an exciting new chapter for our customers, partners and employees by combining Keurig Green Mountain with JAB’s global coffee platform. JAB fully supports Keurig Green Mountain’s culture and values as we continue to pursue our commitment to deliver innovative beverage solutions for consumers at the touch of a button.”

JAB, an investment company owned by Germany’s Reimann family, has been particularly active in the food, retail and consumer products of late. The company has taken a particular interest in coffee makers and chains across a number of markets. JAB now owns stakes in Caribou Coffee Co, Peet’s Coffee & Tea, and Danish coffee-bar chain Baresso Coffee A/S. In July 2015, Jab acquired Mondelez International’s Europe-focused coffee business for around $4bn.

Irene Rosenfeld, chairman and CEO of Mondelēz International, said: “Keurig Green Mountain is a strategic asset that provides immediate access to the US, the largest coffee market in the world, and to on-demand, the fastest growing segment of the market. By leveraging our existing investment in JDE and not contributing incremental capital, we have the opportunity to diversify our participation in the global coffee category, while continuing to invest in our core snacking business to deliver significant value for our shareholders over the long term.”

JAB has announced that Keurig will continue to operate as an independent subsidiary once the deal has been completed. The amalgamation of Keurig into JAB’s burgeoning coffee empire will see the company move close to global coffee market leader Nestle. In 2014, Nestle’s market share was 22.3 percent. By comparison, Mondelez, DE Master Blenders, Keurig and Peet’s held a combined 21 share.

Bart Becht, JAB’s chairman said: “Keurig Green Mountain represents a major step forward in the creation of our global coffee platform. It is a fantastic company that uniquely brings together premium coffee brands and new beverage dispensing technologies like the famous Keurig single serve machine. Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee & technology strength and continue to serve all its partners to the best of its abilities.”

Given the size of the premium offered to Keurig’s shareholders, it is little surprise that the deal has won the approval of the company’s largest stakeholder, Coca Cola. “The Coca-Cola Company is fully supportive of this transaction,” said Muhtar Kent, the company’s chairman and CEO. “We have enjoyed a strong partnership with Keurig Green Mountain, and will continue our collaboration with JAB in order to capitalise on the growth opportunities in the single-serve, pod-based segment of the cold beverage industry. We look forward to working with JAB, an experienced operator with a successful track record of investing in and growing consumer companies.”

The deal, should it win the approval of Keurig’s other shareholders, is expected to close in the first quarter of 2016.

Richard Summerfield