* Joh A Benckiser agrees to buy D.E Master Blenders
* 12.5 euros per share cash bid is below initial proposal
* No plans to sell Reckitt shares to fund deal
* JAB aims to close gap on coffee leaders Nestle, Mondelez
By Sara Webb and Martinne Geller
AMSTERDAM, April 12 German investor Joh A
Benckiser (JAB) is to buy the owner of Douwe Egberts coffee in a
7.5 billion euro ($9.8 billion) deal to create a global hot
drinks empire aimed at taking on market leaders Nestle
and Mondelez International.
D.E Master Blenders 1753, the Dutch owner of Douwe
Egberts coffee and Pickwick tea, said on Friday it had reached
conditional agreement on a 12.50 euros per share cash takeover
offer from a group of investors led by JAB.
JAB, the investment vehicle of the billionaire Reimann
family, has been building a hot drinks business in a bid to tap
strong growth driven by new products, such as single-serve
coffee brewers, and demand from emerging markets.
It owns Caribou Coffee Co Inc and Peet's Coffee
& Tea Inc in the United States, and has had its eye
for some time on D.E Master Blenders, which has a strong
position in Europe.
The offer is below an original proposal from JAB of 12.75
euros per share. But it still represents a 36
percent premium to the stock's average closing price in the
three months before the proposal was disclosed.
Analysts said the price compared favorably with recent
similar deals and saw little chance of a rival bid, not least
because JAB already owns around 15 percent of D.E Master
Blenders, meaning it will actually pay about 6.4 billion euros.
Chief Executive Jan Bennink, who will step down after the
takeover, said D.E Master Blenders had not had contact with
other potential buyers.
"We consider the probability of a higher offer to be slim,"
KBC Securities analysts Pascale Weber and Jan-Willem Billiet
said in a note, recommending investors accept the offer.
They said the price represented a ratio of enterprise value
(debt plus equity) to expected 2014 earnings before interest,
tax, depreciation and amortization (EBITDA) of 15.7 times.
In comparison, analysts pointed to a deal by Warren
Buffett's Berkshire Hathaway and 3G Capital to buy H.J.
Heinz Co at a 2013 EV/EBITDA of 14.6 times.
D.E Master Blenders' stock closed down 0.98 percent at 12.11
FROM BEER TO BEANS
JAB's Bart Becht, a former chief executive of Reckitt
Benckiser who will become chairman of the Dutch company,
said D.E Master Blenders would provide a platform for organic
growth and for acquisitions in the coffee and tea sectors.
He said JAB plans to keep the Dutch company separate from
its U.S. coffee shop business, since there are few synergies
between the retail side and packaged goods side. The brands are
unknown in each other's markets and the businesses are run quite
differently, Becht said.
JAB is still open to more deals both on the retail side,
which is home to U.S. chain operators such as Starbucks Corp
and Dunkin Brands, and the packaged coffee
side, which includes players such as J.M. Smucker Co in
the United States and Lavazza in Italy.
Given the credentials of JAB's principals and their
connections to deal-making consumer products giants such as
Reckitt Benckiser, Anheuser Busch InBev and Mars,
observers expect JAB to move to build its coffee business into a
much bigger player.
"We have done this before," Bart Becht said in an interview.
Following the acquisition, D.E Master Blenders board would
include Becht, and other JAB principals Peter Harf, a former
chairman of AB InBev, Olivier Goudet, head of its audit
committee and Alexandre Van Damme, who is also connected to AB
InBev. Also involved is Alejandro Santo Domingo, a board member
"They see a lot of similarities between the coffee and beer
industries, for example in terms of production, marketing and
branding," said a person familiar with the deal. "They want to
consolidate and build the brands."
But Becht said: "These people made a lot of money in beer
and they are looking to diversify their portfolios. That's the
principle reason why we've been talking to them."
Because JAB is controlled by the German Reimann family,
Becht said the firm enjoyed working with other family-owned
investors, including the beer-derived holdings involved in this
"It's much easier to agree on the long-term nature of our
investments. We are looking at this as a 15-20 year investment,"
The Reimann fortune comes from the Benckiser chemicals
company, founded in 1823. The family also controls perfumes and
cosmetics group Coty, and owns Labelux Group, manager
of luxury brands Bally, Belstaff and Jimmy Choo.
Douwe Egberts coffee is one of the best-known brands in the
Netherlands and its parent company, D.E Master Blenders, ranks
third in terms of coffee sales after market leader Nestle and
Mondelez International, according to Euromonitor International.
But the Dutch firm, which also owns Senseo coffee, has had a
rocky time since it was spun off last year from Sara Lee Corp,
which has since changed its name to Hillshire Brands.
Within weeks of its listing, it shocked investors with the
news its Brazilian unit had been hit by fraud, tax and inventory
problems, forcing it to restate past financial statements.
Previous CEO Michael Herkemij quit in December, just six
months after the stock market debut, and in February the firm
reported lower-than-expected profits and cut its outlook for
2013 citing pricing pressures in austerity-hit Europe.
JAB said it would finance the deal through a combination of
roughly 3 billion euros of debt and about 4.9 billion euros in
equity, and said it had committed financing from arrangers Bank
of America, Citibank, Rabobank and Morgan Stanley.
It does not plan to sell any of its 10 percent stake in
Reckitt Beckiser to finance the coffee deal, a spokesman said.
The deal is conditional on issues including regulatory
Leonardo & Co., BDT & Company, Bank of America Merrill Lynch
and Rabobank/Rothschild are financial advisers to JAB. Lazard is
lead financial adviser to D.E Master Blenders, with Goldman
Sachs and JP Morgan also acting as financial advisers.