JAB Holding to Buy Out Keurig in Biggest Coffee Deal Ever
Synergies from Keurig-JAB deal
Keurig Green Mountain (GMCR) entered into a definitive agreement under which JAB Holding Company will acquire Keurig Green Mountain for a total equity value of $13.9 billion.
JAB believes Keurig Green Mountain (GMCR) is a unique company with premium coffee brands and new beverage dispensing technologies. Once the Keurig-JAB deal is complete, Keurig will operate as an independent private company with no plans to change the current management.
JAB to get access to US market
Keurig has a presence in the US and Canada with the leadership position in the North America single-serve coffee market. In fiscal 2015, single-serve packs accounted for 80.6% of Keurig’s total revenue.
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Keurig has a 20% share in the US packaged coffee market (XLP), the largest and the fastest growing coffee market in the world.
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According to the Euromonitor, Keurig controls 61% of the $6 billion North American single-serve coffee market compared to Nestle’s (NSRGY) 4% share.
With the completion of the Keurig-JAB deal, JAB, which already has a major presence in European markets, will get an opportunity to control the North American single-serve coffee market and may introduce its premium brands in the US market. JAB will also get access to Keurig’s innovative beverage solutions, which we’ll discuss in part five of the series, and its hot coffee brewing platform of commercial and home use brewers for the AFM (away from home) and AH (at home) channels differentiated by features and size.
Advantage of scale
The bigger company can expect synergies on both the cost and revenue side. Together, the combined company will be in a position to cater to the bigger geography and may achieve revenue synergies as a result. It can also expect cost synergies by avoiding duplication and getting better access to raw materials.
Mondelez to focus on snacking portfolio
Mondelez (MDLZ) expects the Keurig deal to help the company diversify into the global coffee market with its strong coffee platform in the US. Therefore, Mondelez may continue to invest in its core snacking business.
Keurig makes up 0.06% of the portfolio holdings of the S&P 500 Index (SPY) and the iShares Core S&P 500 (IVV). Consumer staples firms make up 9.8% of IVV’s portfolio holdings.
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