Coke to buy $1.25 billion of GMCR as part of long-term partnership

-A A +A

Coke to buy $1.25 billion of GMCR as part of long-term partnership

Wed, 02/05/2014 - 11:49am -- tim

by Tim McQuiston Vermont Business Magazine Green Mountain Coffee Roasters, Inc shares rose rapidly in after hours trading Wednesday to over $110 per share on the news that Coke would buy 10 percent of the company. The Coca-Cola Company (NYSE: KO) and Green Mountain Coffee Roasters, Inc (NASDAQ: GMCR), based in Waterbury, Vermont, 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 at-home beverage system.
Under the global strategic agreement, GMCR and The Coca-Cola Company will cooperate to bring the Keurig Cold 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 percent minority equity position in GMCR.
This is seen by analysts as a direct response to the success of SodaStream, the at-home soda maker.
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.
After the news was released, shares shot up over 30 points by 5 pm to over $110 in after hours trading. Shares opened at $109.89 Thursday on heavy volume before falling back to around $105. The 52-week range is $42.25 - $89.66. Coke and SodaStream were both up modestly following the news.
SEE Q1 2014 RESULTS
As part of the strategic collaboration, GMCR will be The Coca-Cola Company's exclusive partner for the production and sale of The Coca-Cola Company-branded single-serve, pod-based cold beverages. The two companies also will explore other future opportunities to collaborate on the Keurig® platform.
"With The Coca-Cola Company as a global strategic partner in our multi-brand at-home Keurig Cold beverage system, we believe there is significant opportunity to premiumize and accelerate growth in the cold beverage category by empowering consumers with an innovative, convenient way to freshly prepare their favorite cold beverages at the push of a button," said Brian P. Kelley, President and CEO of GMCR. "This global relationship combines The Coca-Cola Company's unparalleled brand, distribution and marketing strengths with GMCR's innovative technology and beverage system expertise."
Kelley is a former Coke executive.
"Our 2020 Vision calls for decisive and timely action to continuously improve and evolve our global system to best serve our customers and consumers around the world," said Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company. "This agreement demonstrates our creative approach to partnerships and ability to identify and stay at the forefront of consumer trends driving the industry. By pairing The Coca-Cola Company's brand leadership and global footprint with GMCR's innovative technology, together we will be able to capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry. Importantly, this partnership provides our consumers with a convenient way to enjoy the brands they love through in-home preparation."
The investment is expected to close in March 2014, subject to customary closing conditions, including receipt of required regulatory approvals.
GMCR's Keurig Coldâ ¢ single-serve beverage system is currently under development with expected availability in GMCR's fiscal year 2015. Keurig Coldâ ¢ will use precisely formulated single-serve pods to dispense freshly-made cold beverages including carbonated drinks, enhanced waters, juice drinks, sports drinks and teas in consumers' homes with the one-touch simplicity, quality and variety that North American consumers love about the Keurig® brand hot system platform. The cold system is expected to be a similarly open-architecture platform like the Keurig® hot system.
GMCR's Use of Proceeds
GMCR intends to execute a meaningful share repurchase program to reduce dilution from the transaction. This will be executed under the Company's existing $1.1 billion share repurchase authorization. In addition, GMCR intends to use a portion of the proceeds from the new equity issuance to fund anticipated capital expenditures for its Keurig Coldâ ¢ beverage system over the next several years.
BofA Merrill Lynch served as financial advisor to GMCR and Baker & McKenzie LLP is acting as legal advisor.
About Green Mountain Coffee Roasters, Inc.
As a leader in specialty coffee and coffee makers, Green Mountain Coffee Roasters, Inc. (GMCR) (NASDAQ: GMCR), is recognized for its award-winning coffees, innovative Keurig® Single Cup brewing technology, and socially responsible business practices. GMCR supports local and global communities by investing in sustainably-grown coffee, and donating a portion of its pre-tax profits to social and environmental projects. For more information visit: www.gmcr.com. To purchase Keurig® and Green Mountain Coffee® products visit: www.Keurig.com, www.greenmountaincoffee.com or www.keurig.ca.
GMCR routinely posts information that may be of importance to investors in the Investor Relations section of its website, www.GMCR.com, including news releases and its complete financial statements, as filed with the SEC. The Company encourages investors to consult this section of its website regularly for important information and news. Additionally, by subscribing to the Company's automatic email news release delivery, individuals can receive news directly from GMCR as it is released.
ATLANTA & WATERBURY, Vt.--(BUSINESS WIRE)-2.5.2014