Joh. A. Benckiser agreed to buy Peet’s Coffee & Tea Inc., giving the closely held German holding company about 190 specialty cafes in the U.S. and access to an expanding grocery business.
The offer of $73.50 per share is 29 percent more than Peet’s closing price of $57.16 on July 20. The transaction is expected to be completed in about three months, Ludwigshafen-based Joh. A. Benckiser and Peet’s said today in a statement. Peet’s rose 28 percent to $73.05 at the close in New York.
While profit at Emeryville, California-based Peet’s has been hurt recently by surging coffee prices and increased competition, sales in its grocery business have risen. The company began selling Godiva brand coffees in grocery and drug stores in 2009 to establish a bigger retail presence, especially in flavored coffees.
The purchase is the second coffee-related acquisition by Joh. A. Benckiser in less than a month. The group disclosed a 12.2 percent stake in D.E Master Blenders 1753 NV on July 3 and has said it might increase its stake in the Dutch maker of Pickwick tea and Senseo single-serve coffee pads, though it planned to remain a minority investor.
“At JAB, we are committed to owning and investing in companies with strong, premier-quality brands and great people whose values we share,” Bart Becht, chairman of JAB, said in today’s statement. Becht said he supports the management’s “vision for future growth.” Tom Johnson, a spokesman for JAB, declined to comment further on the German holding company’s strategic plans for Peet’s.
“We would not be surprised to see certain shareholders object to the deal or competing bids emerge,” David Tarantino, a Milwaukee-based analyst at Robert W. Baird & Co., wrote in a research note. “A higher price can be justified.”
Earlier today, Peet’s climbed as high as $74.60, indicating investors may see potential for a higher bid
Becht became chairman of Coty Inc. last year after stepping down as chief executive officer of Reckitt Benckiser Group Plc. Coty, in which JAB also has a majority stake, withdrew its offer for Avon Products Inc. after the world’s largest door-to-door cosmetics seller refused to negotiate and now plans to sell shares to the public in an initial public offering.
JAB, the investment company of the German billionaire Reimann family, is paying about 21 times earnings before interest, taxes, depreciation and amortization for Peet’s, according to data compiled by Bloomberg. That compares with the median of about 13 times Ebitda in a survey of five similar deals during the past decade.
The largest takeover in the coffee industry in that period was JM Smucker Co.’s purchase of the Folgers coffee brand from Procter & Gamble Co. Peet’s traded as high as $76.82 as recently as April 30.
Peet’s was founded by Alfred Peet in Berkeley, California in 1966, five years before Starbucks was started in Seattle. Peet mentored Starbucks’ co-founder Gerald Baldwin, who later bought Peet’s and sold the Starbucks chain. Baldwin was Peet’s chief executive officer for about 23 years and serves as a board member.
Peet’s revenue increased 11 percent to $371.9 million last year, while profit rose about 1.6 percent to $17.8 million, according to a company filing. Peet’s has said it may enter the market for brew-your-own single-serve coffee. Dunkin’ Brands Group Inc. and Starbucks Corp. have deals with Green Mountain Coffee Roasters Inc. to sell K-Cups for Green Mountain’s Keurig brewer.
“Peet’s lost out to Green Mountain for Diedrich, so it didn’t get into single-serve technology, which was a mistake,” said Marcia Mogelonsky, a food industry analyst at Mintel in New York. Waterbury, Vermont-based Green Mountain bought Diedrich Coffee Inc. in 2010, after a bidding war with Peet’s.
“The brand is underappreciated by coffee shoppers as it doesn’t have the broad reach and reputation of Starbucks,” Mogelonsky said. “But it is now protected from Starbucks and can be nurtured and grown so that JAB can turn it around and make some money from it.”
BDT Capital Partners LLC, the Chicago-based firm run by Byron Trott, a former Goldman Sachs Group Inc. vice chairman, is investing alongside JAB for a minority stake, the companies said.
Citigroup Inc. acted as the exclusive financial adviser to Peet’s and provided a fairness opinion to the board, while Cooley LLP served as legal adviser. Skadden Arps Slate Meagher & Flom LLP provided legal counsel to JAB on the transaction, while Morgan Stanley and BDT served as financial advisers.
JAB’s offer for Peet’s was the second-largest for U.S. beverage company deals completed this year, according to data compiled by Bloomberg. The largest was Downers Grove, Illinois-based Hillshire Brands Co.’s spinoff of its international coffee and tea business in June.
“Joh. A. Benckiser has been very active in acquiring strategic stakes and this offer fits into the company’s strategy,” said Klaus Kraenzle, an analyst at Silvia Quandt & Cie. in Frankfurt, in a phone interview.
“Lots of companies are facing the problem of increasing raw material prices affecting their margins and JAB’s offer is an opportunity to help grow Peet’s business,” he said. “There might be some synergies with Master Blenders but they are likely to be limited because the two are different businesses operating in different regions.”