Green Mountain Gets Larger With Lavazza (GMCR)

August 11, 2010 by Jon C. Ogg

Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR) is already large, but its ties are about to get even larger.  The company has announced that it and Luigi Lavazza S.p.A have entered into a $250 million common stock purchase agreement.

Lavazza will purchase $250 million of newly issued shares of Green Mountain’s common stock, which comes to roughly  7% of the current outstanding shares.  The terms call for a price equal to the 60 day volume weighted average price  at closing and the price will then be given a 7.5% discount to that price.

The two companies have announced that they will work together on a further agreement to develop and Lavazza will manufacture new single-serve espresso machines and single-serve espresso capsules for the machines. These co-developed machines will complement Green Mountain’s Keurig® single-cup coffee brewing line, however these co-developed machines and capsules will likely not be available before Green Mountain’s fiscal year of 2013. Green Mountain may also distribute, market and sell existing coffee espresso single-cup machines utilizing Lavazza’s espresso technology for in-home use in the United States and Canada.

Lavazza will not sell the newly purchased shares for a year. Thereafter, Lavazza will only sell in open-market transactions or to certain institutional investors.  Lavazza will also vote these shares in concert with Green Mountain’s board, it will be allowed to have an observer at the Green Mountain board meetings, and it may under certain circumstances have a right in the future to designate a board member.

The agreement also contains a five and a half standstill period after a one-year period, including the right to purchase additional shares up to 15% of Green Mountain’s outstanding shares.

This is not a merger.  It is a stake.  It is also a long way of describing a new joint venture between the companies.  Either way, Green Mountain just buttoned down a new partnership and just neutralized a future competitor.