Keurig Green Mountain (GMCR) will be taken private by a JAB Holding Co. led investor group for ~$13.9 billion in cash. The price of ~$92 per share represents a 78% premium to the company’s December 4 closing share price, which was the result of a year of disappointing earnings and questions about the firm’s long-term growth prospects. In its fourth-quarter earnings report, Keurig recorded double-digit declines in net sales, operating income, net income, and diluted income per share.
Though the price premium certainly was a surprise (greater than the high end of the fair value estimate range), the buyout hardly comes as a surprise to us. We have been of the opinion that a takeout would the best case scenario for Keurig, viewing it as a natural extension that Coca-Cola (KO) would take full ownership of the company after establishing a ~16% stake in it. Coca-Cola has stated that it is fully supportive of the transaction and will continue to work with JAB in the single-serve, pod-based segment of the cold beverage industry. At face value, the trade for Coca-Cola looks like a great one.
After the transaction closes, Keurig will function as a privately-owned company that operates independently as a part of JAB Holdings’ global coffee platform. Partners in the transaction with JAB include investors in the joint venture the private firm created in July by combining its D.E. Master Blenders 1753 coffee business with the coffee business of Mondelez International (MDLZ) called Jacobs Douwe Egberts, which is now the largest pure-play coffee company in the world.
The group believes that its high premium offer for Keurig will keep competitive bidders at bay as it begin planning to integrating the unique company into its global coffee platform. Starbucks (SBUX) is watching closely, and Dunkin’ Brands (DNKN) can’t ignore developments either. Our 16-page valuation report of Green Mountain will be updated shortly to reflect the proposed buyout price.