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JAB buys Keurig for $14bn, challenging Nestle as coffee leader

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JAB Holding took its grip on the world coffee market close to that of leader Nestle by sealing the $13.9bn purchase of US-based Keurig Green Mountain, the maker of K-Cup capsules, in the latest of a spree of acquisition in the sector.

Bart Becht, the JAB Holding chairman, said that it was taking a "major step forward in the creation of our global coffee platform" by acquiring Keurig, the Vermont-based coffee producer best known for its single-serve pods and brewing machines.

Keurig - which agreed to be purchased for $92.00 a share, a 78% premium to the stock's closing price on Friday - "is a fantastic company", Mr Becht said.

Keurig, whose brewing machines are in 20m households, is the leader in North America's $6.1bn single-serve coffee market.

Deal spree

The purchase is the latest in a string of coffee sector mergers, and comes two months after Andrea Illy, the head of Italian giant IllyCaffe, told Agrimoney.com that he was forecasting more deals in the industry.

JAB itself has undertaken many of the acquisitions this year - most notably the E33.8bn ($4.1bn) purchase in July of the Mondelez International coffee business, but also including Danish-based coffee shop operator Baresso Coffee and Swedish peer Espresso House.

In the US, JAB has already purchased Caribou Coffee for $340m, and Peet's Coffee and Tea for $974m, both three years ago.

Counting in Keurig, JAB's assets have a combined share of some 21% of the world market, according to Euromonitor data, not far below the 22.3% attributed to global leader Nestle.

The acquisition of Keurig, in being such a large force in single-serve coffee, appears a particular threat to Nestle in the market the Swiss group has dominated, in Europe at least, through Nespresso.

Acquisition consortium

However, JAB stressed that Keurig would "continue to be operated independently" by existing managers, rather than subsumed into other parts of the JAB empire.

This strategy will "ensure it will… continue to serve all its partners to the best of its abilities", Mr Becht said.

JAB - the holding company of Germany's Reimann family, and which also owns non-coffee assets such as upmarket shoe brand Jimmy Choo – also stressed that it was buying Keurig "in partnership with strategic minority investors".

'Strategic asset'

These include BDT Capital Partners, run by former Goldman Sachs investment banking head Byron Trott, and which is an investor in Peet's and Caibou.

Mondelez International - which retained a 44% stake in the combined Jacobs Douwe Egberts (JDE) business formed by July's combination of its coffee assets with JAB's DE Master Blenders 1753 – is also a member of the acquisition consortium.

Irene Rosenfeld, the Mondelez chairman and chief executive, 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."

Coke exits

However, JAB is not being joined in the acquisition team by Coca-Cola Company, Keurig's biggest shareholder, which is to receive cash for its 17.4% stake, worth some $2.4bn at the offer price.

Muhtar Kent, the Coca-Cola chairman and chief executive, said that the group had enjoyed a "strong partnership" with Keurig, bit was "fully supportive" of Monday's deal.

Keurig shares had, as of Friday, fallen by some 61% this year, as the group struggled with strengthening competition in the US coffee capsules market, and with a somewhat tepid response to the launch of its Keurig 2.0 coffee brewer.

The shares stood 73% higher at $89.54 in lunchtime deals in New York, just short of JAB's offer price.

"This transaction will deliver significant cash value for our shareholders," said Brian Kelley, the Keurig chief executive.

By Mike Verdin

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