In a move shocking to many investors, Keurig Green Mountain announced on Monday, December 4th that it has agreed to a $92 a share buy out from an investor group led by JAB holdings. Value investors (who already questioned the current share price of Keurig based on both sales/sales growth and concerns about the business model) are somewhere between stunned and bemused that JAB (or anyone for that matter) would pay a 77% premium for a company with so many unanswered questions.
Not surprisingly, the almost $14 billion deal has the approval of major Keurig Green Mountain Inc (NASDAQ:GMCR) shareholder Coco Cola. Other investors in the JAB-led group include Mondelez International and holding companies of BDT Capital Partners.
Current investors in Keurig are ecstatic, as the stock had lost more than half of its value in 2015.
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Of note, Keurig Green Mountain Inc (NASDAQ:GMCR) will be privately owned after the merger, but will continue to be operated independently by the same management team and employees. Keurig Green Mountain will also still be headquartered in Waterbury, Vermont.
Statement from Keurig Green Mountain and JAB Holdings
Bart Becht, the Chairman of JAB, noted: “Keurig Green Mountain represents a major step forward in the creation of our global coffee platform. It is a fantastic company that uniquely brings together premium coffee brands and new beverage dispensing technologies like the famous Keurig single serve machine. Keurig Green Mountain will operate as an independent entity to ensure it will further build on its coffee & technology strength and continue to serve all its partners to the best of its abilities.”
Brian Kelley, the President and CEO of Keurig Green Mountain highlighted: “This transaction will deliver significant cash value for our shareholders and offers an exciting new chapter for our customers, partners and employees by combining Keurig Green Mountain with JAB’s global coffee platform. JAB fully supports Keurig Green Mountain’s culture and values as we continue to pursue our commitment to deliver innovative beverage solutions for consumers at the touch of a button.”
Shares of the company are currently up 75% in pre-market trading to around $90 a share. David Einhorn recently re-opened his short position in the company, according to an investor letter. GMCR is a hot short and many equity hedge funds already having a tough year likely just got another bolt of bad news. Whitney Tilson noted in an email to investors this morning:
I haven’t been short this for over a year – it was one of my more irritating covers, as it fell by more than 50%, but I’m breathing a sigh of relief this morning. How did the company get these guys to pay such a massive premium??? This sure underscores one of the major risks of short selling…