Keurig Green Mountain Inc, the maker of K-Cup single-serve coffee pods, said on Monday it would be bought by an investor group led by Germany's JAB Holding Co (JAB) for about $13.9 billion, creating a global coffee giant.
The deal, pitched at a rich 78 percent premium to Keurig's Friday close, is the latest by JAB as it seeks to become a formidable competitor to world coffee market leader Nestle SA .
The acquisition will make JAB the leader in the $6.1 billion North American single-serve coffee market, in which Nestle has a small presence.
JAB formed a joint venture in July called Jacobs Douwe Egberts - now the largest pure-play coffee company - by combining its D.E. Master Blenders 1753 business with the coffee business of Mondelez International Inc.
JAB, the investment vehicle of the billionaire Reimann family of Germany, bought U.S. coffee companies Caribou Coffee Co and Peet's Coffee & Tea in 2012.
Shares of Keurig, which until Monday had dropped more than 60 percent this year, were trading at $89.89 shortly after the opening, below the offer price of $92.00 per share.
The stock, which last traded at $92 in May, is heavily shorted, with nearly 13 percent of the total float held by investors who had bet that the stock would fall.
As of Oct. 21, those holding short positions included David Einhorn's Greenlight Capital.
"The 78 percent premium should keep other bidders at bay," SunTrust Robinson Humphrey analyst William Chappell wrote in a client note.
Coca-Cola Co, Keurig's biggest single shareholder, said it would receive cash for its 17.4 percent stake in the Vermont-based company. The stake is valued at about $2.4 billion at the offer price. Coke's shares were little changed.
Many analysts had thought Coke would eventually buy the company after it bought a 10 percent stake in Keurig last year and added to its holding this year.
"It's a demanding valuation," said Vontobel analyst Jean-Philippe Bertschy, who estimates the deal price represents a multiple of about 15 times EBITDA. The stock was trading around 8 times EBITDA last week, he said.
Bertschy, however, said the deal would have a minimal impact on Nestle as its Nespresso and Dolce Gusto brands are small in the U.S. single-serve coffee market.
The North American single-serve coffee market accounts for about 40 percent of the $15 billion global market, according to market research firm Euromonitor International. Keurig is the leader in North America with a 61 percent market share.
However, the company has struggled with declining sales of its single-serve coffee pods and brewers due to intense competition. Its stock had lost more than 60 percent of its market value this year up to Friday's close.
Keurig's latest countertop device, a cold drink brewer developed with Coke called Keurig Kold, has also failed to excite buyers since its launch in September.
JAB is acquiring Keurig in partnership with investors who are already shareholders in Jacobs Douwe Egberts, including Mondelez and entities affiliated with BDT Capital Partners.
JAB's other holdings include controlling stakes in cosmetics company Coty Inc and luxury goods makers Jimmy Choo .
The deal is expected to close in the first quarter of 2016.
BofA Merrill Lynch and Credit Suisse provided fairness opinions to Keurig Green Mountain. (Reporting by Sruthi Ramakrishnan in Bengaluru and Martinne Geller in London; Editing by Saumyadeb Chakrabarty)