(Adds comments from JAB Holding Co chairman, background)
May 7 (Reuters) - Mondelez International Inc and competitor D.E Master Blenders 1753 are merging their coffee businesses in a deal aimed at taking on market leader Nestle SA .
The merger announced on Wednesday will marry Mondelez's grocery coffee brands such as Carte Noire and Gevalia with D.E Master Blenders' L'OR, Pilao and Senseo brands. The new company will be a joint venture controlled by D.E Master Blenders' parent JAB Holding Co.
Mondelez, whose shares were up nearly 8 percent in midday trading, said it would receive about $5 billion and a 49 percent stake in the new combined company.
The company, to be called Jacobs Douwe Egberts, will be run by the current management of D.E Master Blenders, and will be based in the Netherlands.
The deal clears the way for Mondelez to focus on its snacks business, best known for Cadbury chocolate and Oreo cookies, and is the latest move by JAB to raise its profile in the global coffee market.
With annual revenue of more than $7 billion, the new company will be the world's No. 1 pure-play coffee company, though still significantly smaller than the coffee business owned by Nestle.
The new company will focus on the grocery and home-brewing side of the global coffee business, D.E Master Blenders Chairman Bart Becht told Reuters. Becht, who is also JAB's chief executive, will be chairman of the new company.
Pierre Laubies, chief executive of D.E Master Blenders, will become CEO of the combined company
"It's a story of cross-fertilization," said Becht, adding that the merger opens opportunities to introduce the Senseo home coffee brewer to new markets and allows the new company to expand in the instant coffee arena.
JAB, a holding company controlled by Germany's billionaire Reimann family, bought the owner of Douwe Egberts coffee last year in a 7.5 billion euro ($10.4 billion) deal. It also bought U.S. coffee chains Caribou Coffee and Peet's Coffee & Tea in 2012 for $340 million and $1 billion, respectively.
Caribou and Peet's, which compete with Starbucks and Dunkin Brands Group, are not part of the new company. Neither is Mondelez's coffee business in France, though JAB has made a binding offer for that business.
Mondelez, which also reported a stronger-than-expected first-quarter profit on Wednesday, separately announced a $3.5 billion restructuring program designed to cut costs, boost margins and address the main complaint of activist investor Nelson Peltz, who was recently named to the company's board.
Wall Street analysts who cover Mondelez called the coffee merger "strategic" and "elegant" in client notes. They said it should remove Mondelez's coffee business, which accounts for about 11 percent of its global sales and which has had to grapple with volatile green coffee prices, from its operating results in a way that bolsters earnings.
Mondelez said it would use a majority of the $5 billion proceeds to expand its $2 billion share buyback program, and the remainder to pay down debt.
The deal is expected to close in 2015, subject to regulatory approvals.
After that, Mondelez expects snacks to account for about 85 percent of net revenue, compared with 75 percent currently, Mondelez Chief Executive Irene Rosenfeld said on a conference call.
The deal is expected to add to adjusted earnings in the first year after completion, Mondelez said.
D.E Master Blenders was advised by Lazard, BDT, Goldman Sachs and JP Morgan, while JAB was advised by Bank of America and Morgan Stanley. Mondelez was advised by Perella Weinberg Partners and Centerview Partners.