Company acquisitions have been popping up more as 2015 comes to a close. The Federal Trade Commission (FTC) nixed a deal between Staples and Office Depot, and GE backed out of a deal with Electrolux, but at least one major deal is continuing to go forward.
Keurig Green Mountain, the company renowned for its single-serving coffee machines, was acquired by an investor group on Monday for $13.9 billion. The leader of the group, JAB Holding Co. (JAB), will add the company to its collection of other coffee companies – including Jacobs Douwe Egberts, Peet's Coffee & Tea, Caribou Coffee, Einstein Noah Restaurant Group, Espresso House, and Baresso Coffee.
Bought for a bargain
The investor group purchased Keurig for $92 a share, a mark-up of 78% according to closing prices on Friday and 89% when compared to the company's 20-day average. Although record-setting for acquisitions over $5 billion in the beverage industry, the sale comes at a bargain after taxes, depreciation, and amortization. Nevertheless, the move was a surprise to many analysts.
“I was surprised by an acquisition. . . Selling now implies that maybe there were mounting headwinds,” said Brian Holland, analyst at Consumer Edge Research LLC.
Indeed, Keurig Green Mountain had been suffering financially as of late. Sales of Keurig products have been slowing down, and many other brewers were becoming viable options at a more economical price point. The company's cold brewer, Keurig Kold, had also rolled out more slowly than inspected, with only limited inventory being sold during this holiday season.
Despite new ownership, the internal affairs of the company will remain largely unchanged, with the current management team continuing to run the company. “Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee and technology strength,” said Bart Brecht, chairman of JAB.
But as far as JAB itself is concerned, things may become a little murkier from here on out. By acquiring Keurig, JAB put some of its other business relationships in jeopardy. Partnerships with Starbucks and Dunkin' Donuts, for example, may be soured by the acquisition.
Other companies in the investor group, such as Coca-Cola, benefit as a result of the deal. The beverage giant had already put a 17% stake into Keurig. Now, the company expects to make an estimated profit of $25.5 million on that investment. “We have enjoyed a strong partnership with Keurig Green Mountain, and will continue our collaboration with JAB,” said Muhtar Kent, Coca-Cola CEO.
But as always with these kinds of purchases, one has to think of what it will mean to the consumer. While there are still plenty of companies in the coffee game, the acquisition of Keurig does ultimately take one more choice away from people looking to buy a brewer. How this will ultimately affect them will be seen with time.