Green Mountain Coffee Roasters Surges 30% as Coca-Cola Takes Stake -- Barron's Blog

Ben Levisohn

  I know we all need coffee, but do we need it so badly that Green Mountain Coffee Roasters ( GMCR)

can increase its market capitalization by more than one-third after beating earnings and entering

into a partnership with Coca-Cola ( KO)?

  I guess we do--and so does Coca-Cola. Green Mountain said it earned 91 cents a share, beating

forecasts for 85 cents, while revenue came in at $1.4 billion, in line with forecasts for $1.4

billion. Green Mountain also said that it would earn between 93 cents and 98 cents during its second

quarter, below forecasts for $1.02, while full-year earnings would come in between $3.75 and $3.85,

splitting the forecast for $3.83.

  The big news, however, is Green Mountain's partnership with Coca-Cola, which had Coca-Cola

purchase a 10% stake in Green Mountain for $1.25 billion. From the press release:

  The Coca-Cola Company (NYSE: KO) and Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR)

announced today that the companies have signed a 10-year agreement to collaborate on the development

and introduction of The Coca-Cola Company's global brand portfolio for use in GMCR's forthcoming

Keurig Cold(TM) at-home beverage system. Under the global strategic agreement, GMCR and The

Coca-Cola Company will cooperate to bring the Keurig Cold(TM) beverage system to consumers around

the world. In an effort to align long-term interests, the companies also entered into a Common Stock

Purchase Agreement whereby The Coca-Cola Company will purchase a 10% minority equity position in

GMCR.

  Under the terms of the equity agreement, The Coca-Cola Company will acquire 16,684,139 newly

issued shares in GMCR for approximately $1.25 billion, which represents an approximate 10% ownership

in GMCR (after giving effect to the issuance). The newly issued shares have been priced at $74.98,

which represents the trailing 50-trading-day volume weighted average price ("VWAP") as of market

close today.

  Shares of Green Mountain Coffee Roasters have gained 36% to $109.77 at 5:20 p.m., while shares of

Coca-Cola have risen 0.8% to $37.92.

Coca-Cola Takes Stake in Green Mountain Coffee

Anna Prior

     Coca-Cola Co. has taken a 10% stake in Green Mountain Coffee Roasters Inc. as the companies

unveiled a 10-year agreement to collaborate on the development of a forthcoming Keurig Cold at-home

beverage system.

     The new system will offer single-serve pods to dispense cold beverages including carbonated

drinks, enhanced waters, juice, sports drinks and teas and is expected to be available in the year

that begins in October.

     Coca-Cola and Green Mountain will partner to offer Coca-Cola-branded single-serve pods and will

explore future opportunities to collaborate on the Keurig platfom.

     Coke has agreed to acquire about 16.7 million shares of Green Mountain for about $1.25 billion,

or $74.98 a share, a 7.3% discount to Wednesday's close.

     Green Mountain shares surged more than 40% after hours, but the news weighed on shares of

at-home beverage carbonation system SodaStream International Ltd., which tumbled about 10%.

     Separately, Green Mountain reported fiscal first-quarter earnings grew 28%, due to higher sales

of the company's single-serve coffee packs though sales of its Keurig brewers and accessories

slipped 2.2%.

     Green Mountain has been the dominant player in the single-serve coffee industry, deriving

nearly all of its revenue from Keurig brewers, accessories and K-Cup coffee and tea packs. But the

company is facing increased competition from other brewers, such as Starbucks Corp.'s single-serve

machine and off-brand K-Cups that have emerged since the expiration of some of the company's

patents.

     The company has sought to improve its manufacturing and marketing, as well as create new

brewing machines and expand geographically to drive future growth.

     For the latest quarter, Green Mountain reported a profit of $138.2 million, or 91 cents a

share, up from $107.6 million, or 70 cents a share, a year earlier. Excluding expenses tied to a

Securities and Exchange Commission inquiry and other items, adjusted profit rose to 96 cents from 76

cents a share.

Net sales climbed 3.8% to $1.39 billion.

     In November, Green Mountain forecast a profit of 85 cents to 90 cents a share on sales growth

in the low-to-mid digits.

     Green Mountain said it expects to launch a "meaningful" share repurchase to reduce dilution

resulting from the Coke deal.

     The company also projected current-quarter earnings of 93 cents to 98 cents a share, with sales

expected to grow in the low-to-mid single digits. The outlook excludes the impact of Coke's share

purchase and includes a five cent headwind from foreign currency exchange. Analysts polled by

Thomson Reuters expected a profit of $1.02 a share and 8.1% sales growth to $1.09 billion.

The company affirmed its fiscal year revenue outlook.