D.E Master Blenders CFO expects some U.S. selling

AMSTERDAM Mon Jul 9, 2012 6:20am EDT

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AMSTERDAM (Reuters) - Shares in D.E Master Blenders 1753 DEMB.AS, the Dutch company behind the Douwe Egberts coffee brand, will likely be volatile in their first few weeks of trading as some U.S. investors sell up, the group's chief financial officer said on Monday.

Trading in the 5.75 billion euros ($7.1 billion) group, spun out of U.S. conglomerate Sara Lee SLE.N, officially started on the Amsterdam stock exchange on Monday, giving U.S. investors the chance to sell.

The stock opened at 9.790 euros and fell as low as 9.621 euros. It started unofficial or "grey" market trading on June 12 at 8.000 euros, ending last week at 9.800 euros on news a big investor had bought a stake.

"You will still see in the next few weeks volatility in our share price and volumes," Chief Financial Officer Michel Cup told Reuters as the stock started trading at the Amsterdam exchange. "If you look at U.S. retail investors, we expect that they will step out."

Cup said he expected holdings by U.S. investors to drop to at least 25 percent of the company's shares, down from 80-90 percent now, and for the stock to attract a good mix of European investors, particularly British and Dutch retail investors, given their familiarity with the Douwe Egberts brand.

Analysts had predicted that many of the investors in U.S.-listed Sara Lee who received shares in D.E Master Blenders when it was spun off would switch out of the stock when trading officially began, mainly because the Amsterdam-listed Dutch coffee maker would no longer fit with a U.S. investment mandate.

"It's expected that a large number of the shares will need to find different owners because the company doesn't fit the policy or mandate of these institutional investors," Marco Gulpers, analyst at ING, told Reuters.

"Sara Lee's stock is almost overwhelmingly held by U.S. institutional shareholders, which have received stock in D.E Master Blenders 1753," Kepler Capital Markets said in a research note earlier this month.

Even though the stock has traded in the grey market since mid-June, "we only expect the bulk of the selling from U.S. institutions from July 9 when the stock officially starts trading," it said, adding that this would put pressure on the stock.

Last week, shares in the world's third-biggest coffee maker surged as much as 15 percent in the grey market after affiliates of investor group JAB - majority owner of U.S. cosmetics group Coty Inc, which sells perfumes under the Calvin Klein, Davidoff and Chloe brands - took a 12.9 percent stake.

CFO Cup said JAB wants to keep a minority stake, calling its move "a vote of confidence from such a very solid investor that we have the right strategy".

D.E Master Blenders, whose brands also include Senseo and Pickwick, was spun off by U.S. group Sara Lee, now renamed Hillshire Brands Co to reflect its focus as a North American meat company after the coffee and tea spinoff.

D.E Master Blenders has 5.9 percent of the global coffee market, the third largest after Nestle SA (NESN.VX) and Kraft Foods Inc KFT.O, with 22.8 percent and 12.9 percent respectively.

The Dutch group ranks second after Kraft in ground coffee, but is small in the instant coffee market dominated by Nestle.

Nearly three quarters of D.E Master Blenders' 2.6 billion euros of annual sales comes from five markets - the Netherlands, Brazil, France, Belgium and Germany - and it hopes success in Brazil can be replicated in other emerging markets including eastern Europe and Asia.

The new management team is upbeat about its prospects and expects annual sales to grow by between 5 and 7 percent a year led by the single-serve coffee category which is enjoying annual growth of around 30 percent across the industry.

($1=0.8126 euros)

(Editing by Sara Webb, David Holmes and Mike Nesbit)

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