UPDATE 2-Coca-Cola to boost stake in Keurig to become biggest shareholder

Tue May 13, 2014 1:05pm EDT

(Adds comment from industry expert, background; updates shares)

By Maria Ajit Thomas

May 13 (Reuters) - Coca-Cola Co plans to raise its stake in Keurig Green Mountain Inc to 16 percent from 10 percent, which will make it the largest shareholder of the maker of the popular Keurig one-cup coffee brewer.

Keurig's shares jumped as much as 12 percent in morning trading on the Nasdaq. Coke's shares were up nearly 1 percent on the New York Stock Exchange.

Coke's move to raise its stake within months of its initial $1.25 billion investment in Keurig fits with its strategy of investing in brands before eventually acquiring them.

Coke bought both Honest Tea and Zico, a coconut water brand, a few years after initially picking stakes in them.

Coke said on Tuesday the additional 6 percent stake in Keurig would be acquired over the next few months under an accelerated purchase agreement with Credit Suisse.

"These incremental purchases demonstrate our continued belief that Keurig Green Mountain has substantial growth potential," Coke said in an emailed statement.

Jeff Cioletti, editor-in-chief of Beverage World magazine, said Coke's move was interesting in light of recent speculation that at-home soda maker Sodastream International was in early talks to sell a stake of up to 16 percent.

In April, Israeli financial news daily Calcalist identified PepsiCo Inc, Dr Pepper Snapple Group or Starbucks Corp as potential investors in Sodastream.

"In some ways, (Coke's move) could be a preemptive measure to get there first ... and assert itself in the custom-beverage space," Cioletti said.

Coke and PepsiCo have been struggling with declining soda sales in developed markets such as the United States as consumers become more health conscious.

Under a 10-year agreement announced in February, Coke and Keurig are developing a machine that will serve both carbonated and non-carbonated drinks.

Keurig's machines use pods filled with coffee, tea or hot chocolate powder to brew one-cup drinks at home.

Coke said in February it had bought a 10 percent stake in Keurig, with the option to raise its holding to a maximum of 16 percent through open market purchases.

Once it completes the purchase, Coke will own about 26 million shares of Keurig, up from 16.7 million as of Feb. 27, according to a regulatory filing. (link.reuters.com/qak39v)

Keurig's shares were up 9.7 percent at $121.49 in afternoon trading on Tuesday. Up to Monday's close, the stock had risen about 38 percent since Coke disclosed its initial stake.

Short interest in Keurig's shares had dropped to 8.7 percent as of April 30 from 22 percent at the end of January before the Coke deal was announced. (Reporting by Maria Ajit Thomas in Bangalore; Editing by Saumyadeb Chakrabarty)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article