11 March 2016

JAB-led group acquires Keurig Green Mountain

Last week, JAB Holdings, alongside a group of buyers, successfully acquired beverage company Keurig Green Mountain, which was subsequently delisted from Nasdaq.  The consortium comprised snack food manufacturer Mondelez International, private equity investor BDT Capital Partners and coffee maker Acorn Holdings. Keurig’s shares were priced at USD 92 each (a 78 per cent premium over the target’s close on 4th December, the last trading day prior to the offer being disclosed), valuing the deal at around USD 13,900 million.

The takeover, which was approved by the board, provided an exit for shareholders including the Coca-Cola Company-owned Atlantic Industries. JAB Holdings was advised by banking giants such as Morgan Stanley and JP Morgan, while the target was assisted by Bank of America and Credit Suisse.

Based in Vermont, Keurig manufactures various beverages, such as tea and coffee (K-Cup and K-Mug are among some of its most notable brands), as well as coffee machines. The firm was founded by American billionaire Robert Stiller in 1981 and has since grown its presence in other major locations including Montreal, California and Massachusetts.

Keurig has been plagued by dwindling revenue in the past year. In 2015, the company yielded USD 633 million from its brewers, down 23 per cent from the previous year. Shrinking demand for its coffee machines also affected pod sales, which fell 9 per cent to USD 861 million in Q4 2015 from the same timeframe last year. Moreover, exports to overseas markets could also have been marred by the strong US Dollar. Overall, the company posted net annual sales of USD 4,520 million in 2015, down 4 per cent on the USD 4,707 million recorded in the prior year.

Daniel Kline of the Motley Fool attributed the downturn to the introduction of new brewers, which are only compatible with Keurig-licensed coffee pods. The move restricts cheaper third-party products and limits the variety of coffee that consumers can enjoy, which makes Keurig’s machines less attractive. Furthermore, the launch of the new coffee makers also angered competitors, particularly TreeHouse Foods. In response, the Illinois-based beverage company filed a lawsuit against Keurig, accusing the firm of illegally maintaining a monopoly.

It appears that Brian Kelley, chief executive of Keurig, is counting on the new collaboration to set things right. Seemingly optimistic about the future, he commented that the alliance will offer its stakeholders an exciting new chapter. Similarly, Bart Becht, chairman at JAB Holdings, is confident that Keurig will build on its know-how to continue serving all partners to the best of its abilities. Hopefully, the combined expertise will help reignite Keurig’s earnings growth.

© Zephyr