Coca-Cola to Buy 10% Stake in Green Mountain Coffee

Coca-Cola Co. (KO) agreed to buy a 10 percent stake in Green Mountain Coffee Roasters Inc. (GMCR) for about $1.25 billion and work with the maker of Keurig coffee brewers to introduce a system for producing single-serve cold drinks.

Coca-Cola is buying the 16.7 million newly issued shares for about $74.98 apiece, the companies said yesterday in a statement. Green Mountain shares surged 29 percent to $103.97 at 10:51 a.m. in New York and earlier advanced as much as 37 percent for the biggest intraday gain since March 2011.

Coca-Cola has struggled to keep consumers who increasingly shun its best-selling sodas for alternatives such as iced coffees and energy drinks. Teaming up with Green Mountain on new beverages will help Atlanta-based Coca-Cola boost sales, said Marc Riddick, an analyst at Williams Capital Group LP in New York.

“It’s sales growth that they themselves would not be able to access without that platform,” Riddick said in an interview.

Opinion: Green Mountain Sold Some Stock to Buy Back Some Other Stock

The move fits into Coca-Cola’s preferred strategy of taking equity stakes in promising new brands and technologies, such as Zico coconut water and Honest Tea, and helping incubate them. Coca-Cola eventually acquired all of Zico and Honest.

Photographer: Scott Eells/Bloomberg

Green Mountain Coffee Roasters Inc. single-serve coffee capsules are arranged for a photograph in New York. Close

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Photographer: Scott Eells/Bloomberg

Green Mountain Coffee Roasters Inc. single-serve coffee capsules are arranged for a photograph in New York.

“This is not a zero-sum game, it just provides more opportunity for our brands,” Coca-Cola Chief Executive Officer Muhtar Kent said yesterday on a conference call.

Coca-Cola has the option to raise its stake to as much as 16 percent during the first 36 months, said Ben Deutsch, a company spokesman.

Consumer Preferences

The companies are working together on the Keurig Cold single-cup beverage brewer that will be sold in Green Mountain’s fiscal 2015, which starts later this year. Green Mountain will make and sell Coca-Cola-branded pods to go with the machine.

“This is what consumers told us they wanted,” Green Mountain CEO Brian Kelley said on the call. Coca-Cola cold-drink brands are “popular,” he said.

Still, Green Mountain will partner with other cold-beverage companies to sell single-serve pods that work in the Keurig Cold, he said. Kelley declined to discuss what other brands may be added and didn’t rule out PepsiCo Inc.

“We will have a number of partners and a number of brands on the system,” he said.

Jeff Dahncke, a spokesman for PepsiCo, declined to comment.

The Green Mountain-Coca-Cola partnership will ratchet up competition for SodaStream (SODA) International Ltd., a Lod, Israel-based company that makes home carbonation appliances and soft-drink syrups. SodaStream shares rose 6.7 percent to $38.18, and Coca-Cola climbed 1.4 percent to $38.13.

Buffett Advice

Warren Buffett, 83, who controls the largest investment in Coke, didn’t respond to a request for comment about yesterday’s deal left with an assistant at his Berkshire Hathaway Inc.

Buffett has advised Kent to stay ahead of competitors by being proactive. Last year, at the soda maker’s annual meeting in Atlanta, the executives shared the stage to help sell the company’s message to shareholders.

“I like to study failure,” Buffett said. “We want to see what has caused businesses to go bad, and the biggest thing that kills them is complacency. You want a restlessness, a feeling that somebody’s always after you, but you’re going to stay ahead.”

Buffett spent $1.3 billion accumulating its Coke stake through the end of 1994. The investment is now worth about $15 billion. The Berkshire chairman and CEO once served on Coke’s board and his son, Howard, has been a director of the soft-drink maker since 2010.

New Machines

Kelley has been introducing new brewing machines and increasing advertising to get consumers to continue buying Keurig K-Cup packs. The Waterbury, Vermont-based company has been seeing more competition as grocery stores including Whole Foods Market Inc. begin selling private-label coffee pods.

Green Mountain’s net income in the three months ended Dec. 28 increased 28 percent to $138.2 million, or 91 cents a share, from $107.6 million, or 70 cents, a year earlier, the company said yesterday in a statement. Excluding certain items, profit was 96 cents a share. Analysts estimated 90 cents, the average of 14 projections compiled by Bloomberg. Revenue rose 3.6 percent to $1.39 billion, trailing analysts’ estimates.

To contact the reporters on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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