DE4CC0DE-5FC3-4494-BCBF-4D50B00366B5
Drinks

Master Blenders To Buy Mondelez Coffee Unit For $5bn

By square1
Share this article
Master Blenders To Buy Mondelez Coffee Unit For $5bn

Joh. A. Benckiser, the investment arm of the billionaire Reimann family, agreed to pay Mondelez International $5 billion in cash to create the world’s second-biggest coffee company and step up the challenge to Nestle.

A company led by JAB will combine Mondelez’s coffee unit with DE Master Blenders 1753 BV, giving it control of brands including Jacobs, according to a statement today. Mondelez will gain a 49% stake in the new company, which will be named Jacobs Douwe Egberts and based in the Netherlands

The move is the latest step from Joh. A. Benckiser to consolidate in coffee. The company, co-headed by former Reckitt Benckiser Group Plc Chief Executive Officer Bart Becht, last year bought Master Blenders, the Amsterdam-based maker of Douwe Egberts, for about €7.5 billion ($10.4 billion) in the industry’s biggest-ever deal. That followed purchases of Peet’s Coffee & Tea Inc. and Caribou Coffee Inc.

Mondelez rose as much as 9.2% in New York trading and was up 7.6% at $37.91 at 10:17 a.m. The maker of Oreo cookies also said today it intends to cut at least $1.5 billion in costs by 2018 to expand its profit margin wider than the 15% to 16% it previously promised by 2016.

Merging the Mondelez unit with brands such as Douwe Egberts will allow the combined company to capitalize on “significant growth opportunities in a highly attractive market,” Pierre Laubies, chief executive officer of Master Blenders and prospective CEO of the new entity, said in the statement.

ADVERTISEMENT

‘Formidable Competitor’

The merged entity will have sales in excess of $7 billion and be the market leader in countries including France and Austria. The transaction, which excludes Mondelez’s coffee business in France, should close next year.

“A combined Master Blenders/Mondelez coffee business will likely make for a formidable competitor for Nestle,” Jeff Stent, an analyst at Exane BNP Paribas, wrote in a note shortly after the deal was announced.

Nestle, based in Vevey, Switzerland, is the world’s biggest coffee maker, owning brands including Nespresso and Nescafe.

ADVERTISEMENT

The purchase of the Mondelez division comes amid surging prices for coffee. Robusta coffee futures have climbed 27% this year to $2,142 a metric ton in London, and are up 6.6% in the past 12 months. Arabica coffee futures surged 83% this year in New York to $2.0305 a pound, advancing 42% in the past 12 months.

‘Volatile Asset’

For Mondelez, the transaction “removes a volatile asset from the company while allowing it to retain an equity stake in the combined company,” Chris Growe, an analyst at Stifel Financial Corp. in St. Louis, said today in a note.

Mondelez’s coffee sales fell by a low-single-digit percentage during fiscal year 2013 in a total beverage unit that gained 1%. Mondelez and other coffee makers lowered prices as the cost of raw coffee plummeted. That was most pronounced in roast and ground coffee, which made up about 40% of the company’s coffee sales, Chief Executive Officer Irene Rosenfeld said during a February conference call.

ADVERTISEMENT

Mondelez didn’t provide specifics as to how the $1.5 billion savings announced today would be generated. Mike Mitchell, a spokesman, said the initiatives would focus immediately on policies and processes globally.

“We would expect that there will be fewer roles in the organization in the future,” Mitchell said by e-mail. “We’re in early days, so there are no specifics to share right now.”

Investor Pressure

Ralph Whitworth said in April that his activist fund was pushing Mondelez to improve margins, and warned “the jury is out” on whether current management can deliver. The co-founder of Relational Investors LLC joined Trian Fund Management LP’s Nelson Peltz in pressuring the company for better margins.

ADVERTISEMENT

“We’re working behind the scenes to try to urge change there,” Whitworth said April 22 at the Active-Passive Investor Summit in New York. “Does the current management have the ability to get the job done? That’s a question mark. If they don’t, I think that you’ll probably see some changes there.”

Bloomberg

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.