Keurig Green Mountain Just Got Bailed Out
Image source: Keurig Green Mountain.
There appears to be a caffeinated close to the saga ofKeurig Green Mountainas a publicly traded company. The company behind the once-hot platform of single-cup coffee announced that it has received and accepted an offer to be acquired by JAB Holding Company in an all-cash deal valued at $13.9 billion.
Keurig Green Mountain shareholders will received $92 a share if the majority vote in favor the deal, a likely scenario since the takeout price represents a fat 78% premium to where it closed on Friday.
Naysayers will argue that $92 is a far cry from the $158.87 price point where the stock peaked 13 months ago, but this isn't the same Keurig Green Mountain that it was a year ago. A lot of things have gone wrong over the past year, explaining why the stock had been marked all the way down to $51.70 by the end of last week.
Keurig 2.0 -- the updated coffee-brewing platform that was introduced last year -- has been a disappointment. It was supposed to breathe new life into Keurig's proprietary technology since the main patents governing the K-Cup pods for the original Keurig system expired in late 2012. It didn't pan out that way. There may have been some improvements in the overall system, including the ability to brew an entire pot of java, but the only thing more scorching than its coffee was the wave of negative reviews.
In an ill-advised move to protect its turf, Keurig 2.0 brewers scan labels to make sure that they are authentic Keurig-sanctioned K-Cups. That may sound like a rational business decision, but it infuriated folks that were turning to cheaper generic pods or packing other coffee into reusable pods. Even some of the older K-Cups weren't passing the protective scanning feature.
It's probably not a coincidence that brewer sales started to fall sharply after that, and now even K-Cup sales have slipped despite the theoretically widening installed base of brewers. Total sales at Keurig Green Mountain posted a 13% year-over-year decline in its latest quarter with earnings taking an even bigger hit. The 32% drop in brewer revenue was brutal, but the 9% decline in pod sales is even more problematic.
Keurig Kold rolled out just as Keurig Green Mountain's latest quarter was coming to a close. The maker of carbonated beverages was supposed to breathe new life into the company, and it even smoked out Coca-Cola as a minority stake investor last year. Well, it's off to a rough start.
Kold soda makers are too expensive. The soda pods make 8-ounce portions that cost a lot more than canned or bottled equivalents. The machine also takes has to be turned on for at least two hours for folks wanting the soda to come out chilled. In short, it's probably not too early to call Kold a flop.
Under this kind of gloomy scenario, JAB Holding is doing Keurig Green Mountain investors -- and that includes Coca-Cola -- a favor. This doesn't mean that JAB Holding is getting punked. It has controlling stakes in other global coffee brands, so it knows the market well. It's also easy to argue that the only way that Kold has a chance to succeed is as part of a private company, away from quarterly scrutiny as it works its way through the initial shortcomings. However, as far as Wall Street is concerned, this deal is bailing out burned Keurig Green Mountain investors.
Keurig Green Mountain is on board. Coca-Cola is on board. Shareholders are about to be on board. We may as well raise a coffee mug to toast the exit strategy.
The article Keurig Green Mountain Just Got Bailed Out originally appeared on Fool.com.
Rick Munarriz owns shares of Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $43 calls on Coca-Cola, and short January 2016 $37 puts on Coca-Cola. The Motley Fool recommends Coca-Cola and Keurig Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.