Teavana Makes Acquisition That Makes Sense (TEA)

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Teavana Holdings, Inc. (NYSE: TEA) is making an acquisition and it appears to be a smart move.  Rather than taking the slow build out approach, the company is paying $26.9 million to acquire the assets of Teaopia.  This is the right fit as Teaopia is a mall-based specialty tea retailer in Canada.  This is a direct fit for Teavana.

The deal is expected to be neutral to earnings in Fiscal year 2012 and accretive by $0.03 to $0.04 in earnings per share next year.  Teavana expects to fund the transaction with cash on hand and from borrowings under an existing credit facility.

Teaopia was founded in 2005 in Canada and it operates 46 company-owned stores located primarily in high-end malls across Canada.  The company generated sales of $17 million Canadian Dollars in 2011 and it opened 12 new stores last year.

Teavana currently has over 200 company-owned stores.  The company reported net sales rose to $168.1 million this last year from $124.7 million the prior year.  This will drive the store count up considerably, but will decrease the per-store sales.

All in all, the deal seems to make sense on the surface for a sudden growth mechanism.  Investors are voting a ‘thumbs up’ this morning as the stock is currently up 3.5% at $19.88 and the post-IPO range is $14.28 to $29.35.

JON C. OGG

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