Global Aspirations Drive JAB Holding’s Acquisition of Keurig Green Mountain

eVGKKbCgEarlier this week Keurig Green Mountain, a maker of pod-based, single-serve beverage systems, announced a definitive merger agreement with a consortium of investors led by JAB Holding Co. JAB is a privately held group with controlling stakes in Peet’s Coffee & Tea and Caribou Coffee Company along with several other coffee- and consumer-focused companies. JAB agreed to pay Keurig shareholders $92 per share in cash, a premium of approximately 77.9 percent over Keurig’s closing stock price on December 4, 2015, valuing the company at approximately $13.9 billion. The agreement was unanimously approved by Keurig’s board of directors.

Keurig will operate as an independent entity, according to JAB chairman Bart Becht, who hailed the deal as “a major step forward in the creation of our global coffee platform,” one that has rapidly expanded in recent weeks with JAB-controlled Peet’s acquiring Stumptown Coffee and taking majority ownership of Intelligentsia Coffee.

Although Euromonitor International reports that the market for pod-based beverages has slowed in recent years, Michael Schaefer, head of the market research firm’s beverages and foodservice division, believes that Keurig may be the lynchpin in JAB’s quest to become an international player in premium coffee, serving as “a vehicle for JAB Holdings’ large and growing portfolio of coffee brands, particularly in markets where pod machine adoption remains low.”

Schaefer noted that given JAB’s recent track record, “more acquisitions could be on the way, providing further raw material for this approach.”

David Morris, a market analyst with research firm Packaged Facts, also views JAB’s acquisition of Keurig as an opportunity to extend its holdings in premium coffee and compete with established brands on a global level.

“By combining its restaurant brands with a strong retail position in premium and super-premium single-cup and whole bean coffee, JAB becomes a formidable competitor to Nestle S.A. and Starbucks,” Morris said. “JAB’s tradition of granting its companies independent latitude should help them set trends, not just follow them.”

Buying Keurig gives JAB three major acquisition deals in the premium coffee space in 2015, a strategy that some analysts compared to that espoused by Anheuser-Busch InBev. In a recent article, Bloomberg Business quoted Susquehanna International Group’s Pablo Zuanic as saying that “JAB knows what they are doing.”

“This is obviously part of a much, much bigger strategy,” Zuanic said. “Just like you’ve seen Anheuser-Busch InBev consolidate beer, they want to consolidate coffee.”

Meanwhile, the deal was seen as positive for Keurig shareholders, including the Coca-Cola Co., which last year purchased 10 percent of the company for $1.25 billion and later increased its stake to 16 percent. In a press release, Coca-Cola chairman and CEO Muhtar Kent praised the agreement saying that the company “will continue our collaboration with JAB in order to capitalize on the growth opportunities in the single-serve, pod-based segment of the cold beverage industry.”

KOLDKeurig’s stock price had tumbled badly over the past year, the result of operational problems with its Keurig 2.0 system and weaker-than-expected sales of its new cold beverage device called Keurig Kold. Bonnie Herzog, a Managing Director for Beverage, Tobacco & Convenience Store Research at Wells Fargo Securities, noted that Coke will “essentially break even on its investment in the company following recent weakness in [Keurig’s] stock which drove a nearly $1 billion loss [Coke] on paper.”

Herzog also sees the acquisition as encouraging for Keurig Kold. Launched in September, the machine uses company’s pod-based technology and allows users to create single-serve cold sparkling and still beverages. The deal “will leverage JAB’s global strength in coffee to help support the ongoing launch of the KOLD platform and continue to offer Coke an opportunity to expand into the ‘at-home” channel through its 10-year strategic partnership” with Keurig, Herzog said.