DealZone

Diedrich Coffee battle seen far from over

December 1, 2009

There’s a lot of fuss lately over a coffee company with a market capitalization of just $190 million.

Peet’s Coffee & Tea Inc again raised its bid for Diedrich Coffee, this time to $32.50 a share, besting the $32 per share, all cash offer from Green Mountain Coffee.

Diedrich’s shares are trading above the offer prices at $33.99, up 87 cents, or 2.63 percent, suggesting that investors expect another bid from Green Mountain.

Stifel Nicolaus analysts said they expected Diedrich to declare the latest Peet’s Coffee offer as superior, prompting Green Mountain to come back with yet another bid.

The analysts said it would have to be “meaningfully higher” than the current Peet’s cash-and-stock offer given the potential for upside if Peet’s stock rises. 

Plus, it would have to add in a premium to top Peet’s ability to close the deal three to six months sooner than Green Mountain, with no extension for Federal Trade Commission Review review for Hart-Scott-Rodino anti-trust clearance, the analysts said. 

Diedrich makes and sells K-Cup refills for Green Mountain Coffee’s single-cup Keurig brewer system. 

If Green Mountain acquired Diedrich, the two companies could control 95 percent of the K-Cup market and roughly 82-85 percent of the single-serve or cartridge market, a source familiar with the situation said.

Green Mountain tried to address the concerns about marketshare in a statement on Tuesday.
“The coffee and coffee maker businesses are very large and highly fragmented and (Green Mountain’s) sales constitute just a small fraction in each,” Green Mountain said in a statement.

It depends on how the FTC defines the coffee market and whether it views the single-serve market as distinct market. The FTC has looked at even more narrow markets. In 2002, the FTC sought a preliminary injunction to block the acquisition of Claussen Pickle Co by High, Muse, Tate & Furst’s Vlasic Pickle Co, saying it reduce competition in the refrigerated pickle market.

If the FTC looks at the single-serve coffee market as its own, unique market, Green Mountain could be in a pickle, analysts said. Green Mountain was not immediately available to comment.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/