Keurig Green Mountain Inc. will be acquired by a JAB Holding Co.-led investor group for about $13.9 billion in cash, bringing a massive windfall to shareholders after a year of watching the stock get battered.
Keurig, a maker of single-serve coffee brewers, will be privately owned and independently operated following the buyout, according to a statement Monday. The purchase price of $92 a share is 78% higher than the company's closing price on Friday. The premium is the largest in beverage-industry history for any deal above $5 billion, according to data compiled by Bloomberg.
The deal provides a bounty to investors after weak results and dimming prospects weighed on the stock this year. The company has suffered from waning sales of its K-Cup containers and lower prices on brewers. And a new cold brewer is rolling out more slowly than expected. The strong dollar also is hampering international sales.
The plan to go private follows a dramatic rise and fall for Keurig, a pioneer of single-serve coffee brewers. The surging popularity of its device, which allowed consumers to brew one cup of java at a time, sent sales and profit soaring in the past decade.
In February 2014, Coca-Cola Co. agreed to buy a 10% stake in the company, betting that Keurig could repeat its success with a cold-beverage maker. Coke built up its stake to about 17% between February 2014 and February 2015 at a cost of roughly $2.4 billion, according to a note published today by Sanford C. Bernstein. Coca-Cola will receive cash for its shares, recording a net gain of $25.5 million, and will no longer hold an equity interest.
"We anticipate that the strategic relationship between [Coke] and [Keurig Green Mountain] will continue," Bernstein reported, noting that Coke's original investment included a "10-year agreement for strategic collaboration, with the two companies cooperating to bring the Keurig Kold beverage system to market globally, and with [Keurig] being [Coke's] exclusive partner for the production and sale of [Coke]-branded single-serve pod-based cold beverages."
Keurig began advertising the Kold machine in September with a campaign by Havas Worldwide that gave Coke prominent placement.
But Keurig Kold is only being released on a limited basis this holiday season -- a slower rollout than investors had anticipated. And the reaction to the device has been underwhelming, according to Stifel Financial Corp. That has raised concerns that it will become a niche product. At the same time, demand for its hot brewers and K-cups -- the pods that go into the machines -- has slowed. That's left the company without a reliable growth engine.
Coca-Cola said in Monday's statement that it supported the transaction. "We have enjoyed a strong partnership with Keurig Green Mountain, and 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," Coca-Cola CEO Muhtar Kent said.
JAB is a closely-held investment firm based in Luxembourg that manages the $16 billion fortune of Austria's Reimann family. It's run by a trio of seasoned consumer-industry executives who are plotting a challenge to global leader Nestle SA in the coffee industry. Its holdings outside of food include Jimmy Choo shoes and Coty fragrances.
"They have very deep pockets," said Philip Terpolilli, a New York-based analyst at Wedbush Securities Inc.
Keurig shares had been down 61% this year through the end of last week. They jumped 74% to $89.96 as of 9:35 a.m. in New York after the buyout was announced. The board of Waterbury, Vermont-based Keurig unanimously approved the deal, which is expected to close during the first quarter of 2016.
"Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee and technology strength," Bart Becht, JAB's chairman, said in the statement. The company's management team, which is currently led by CEO Brian Kelley, will continue to run Keurig.
Minority investors in the JAB group include Mondelez International Inc. and affiliates of BDT Capital Partners.
Mondelez International, a minority investor in the Jacobs Douwe Egberts B.V. coffee business controlled by JAB, will hold onto a stake in the new Keurig Green Mountain holding company but will not invest any new cash. In a statement, Chairman and CEO Irene Rosenfeld called Keurig Green Mountain "a strategic asset" and said the deal allows Mondelez to diversify its participation in coffee while continuing to invest in its core snack business. Mondelez currently has a 43.5% stake in Jacobs Douwe Egberts B.V. and expects its stake in that venture will fall to about 26.5%, with its stake in the new joint venture to be somewhat lower.
-Bloomberg News with contributions from Ad Age reporters E.J. Schultz and Jessica Wohl.