Consumer Products

Are Keurig Shareholders Getting Enough?

Keurig Green Mountain Inc. (NASDAQ: GMCR) has been absolutely beaten up this year, but everything is about to change with the announcement of a buyout. Keurig, in conjunction with JAB Holding, announced a definitive merger agreement under which a JAB will acquire Keurig Green Mountain for $92.00 per share in cash, or a total equity value of approximately $13.9 billion. This transaction is expected to close in the first calendar quarter of 2016.

The agreement was unanimously approved by the Keurig board of directors and represents a premium of roughly 78% from Friday’s closing price. This is a premium of 78% from the 50-day moving average but only a 17% premium from the 200-day moving average. However, the last time that shares were near the $92 price level was back in May.

At the close of the transaction, Keurig Green Mountain will be privately owned and will continue to be operated independently by the company’s management team and employees. Keurig Green Mountain will remain headquartered in Waterbury, Vt.

Bart Becht, chairman at JAB, commented on the acquisition:

Keurig Green Mountain represents a major step forward in the creation of our global coffee platform. It is a fantastic company that uniquely brings together premium coffee brands and new beverage dispensing technologies like the famous Keurig single serve machine. Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee & technology strength and continue to serve all its partners to the best of its abilities.

Brian Kelley, president and CEO of Keurig, added:

This transaction will deliver significant cash value for our shareholders and offers an exciting new chapter for our customers, partners and employees by combining Keurig Green Mountain with JAB’s global coffee platform. JAB fully supports Keurig Green Mountain’s culture and values as we continue to pursue our commitment to deliver innovative beverage solutions for consumers at the touch of a button.

Don’t forget that Coca-Cola Co. (NYSE: KO) has a sizable stake in Keurig, approximately 16% as of last February. However, this beverage giant has been losing on Keurig over the course of the year, so a buyout at $92 is very much welcome to stop some of the bleeding. We previously supposed that Coca-Cola might have to make a choice concerning dropping this investment.

Muhtar Kent, Coca-Cola chairman and CEO, also weighed in on the transaction:

The Coca-Cola Company is fully supportive of this 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. We look forward to working with JAB, an experienced operator with a successful track record of investing in and growing consumer companies.

Shares of Keurig closed Friday down nearly 5% at $51.70, with a consensus analyst price target of $56.50 and a 52-week trading range of $39.80 to $141.69. Following the announcement of the acquisition, shares were initially halted, but when they resumed trading, shares were up 75% at $90.50 in early trading indications on Monday.

Coca-Cola shares closed Friday up 2% at $43.29, within a 52-week range of $36.56 to $43.85. The consensus price target is $45.06. Shares were up an additional 0.7% at $43.59 early Monday.

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