* Diedrich accepts Green Mountain's all-cash offer
* Deal to extend Green Mountain's dominance of K-cup market
* Green Mountain pays $8.5 mln termination fee to Peet's
(Recasts, adds background, analysts' comments, stock
By Mihir Dalal
BANGALORE, Dec 8 Green Mountain Coffee Roasters
Inc GMCR.O agreed to buy its licensee Diedrich Coffee Inc
DDRX.O for $35 a share in cash, extending its dominance of
the single-cup coffee market and ending a bidding war with
Peet's Coffee & Tea Inc PEET.O.
Diedrich, which licenses production of K-cup refills used
in Green Mountain's fast growing Keurig brewers, said it
cancelled its merger agreement with Peet's.
The proposed acquisition fits into the company's strategy
of acquiring its licensees. This year, it has already bought
Tully's and Timothy's, two of the four independent licensees
for the K-cup refills used in its single-cup Keurig brewers.
Stifel Nicolaus analyst Mark Astrachan estimates Green
Mountain will control about 85 percent of the K-cup market if
it completes the Diedrich acquisition.
Waterbury, Vermont-based Green Mountain, which twice raised
its offer from its original bid of $30 a share, expects the
deal to be neutral to slightly accretive within the first 12
months after close, excluding one-time items, and add to
Janney Montgomery Scott analyst Mitchell Pinheiro said the
acquisition makes sense from a strategic point of view as Green
Mountain's royalty revenue would be at risk if they are unable
to obtain new K-cup patents.
Green Mountain's patents for its K-cup technology expire in
2012, said Pinheiro, who owns Green Mountain stock.
The analyst said even if the company is unable to renew its
patents, its dominance of the single-cup market will ensure
that the downside is limited.
Analysts estimate that Green Mountain's Keurig brewers have
more than 80 percent share of the single-cup brewer market.
ANTI-TRUST ISSUES UNLIKELY
On Monday, Peet's maintained that there were significant
antitrust issues associated with Green Mountain's proposed deal
with Diedrich. [ID:nBNG519363]
Single-cup brewers, which offer home customers some of the
variety of brews available at a coffee shop, have been
increasing their share of the overall coffeemaker category,
with Green Mountain's Keurig driving the growth.
However, Astrachan said that the category is not big to
invite anti-trust concerns.[ID:nBNG460191]
In a statement, Diedrich said Green Mountain paid for
Peet's termination fee of $8.5 million.
Green Mountain, which is financing the deal through cash on
hand and its credit lines, expects to complete the transaction
in early 2010.
Diedrich's stock was down 1 percent at $34.70 Tuesday
afternoon on Nasdaq, while Green Mountain's stock was up 4
percent at $63.06. Peet's stock was up 3 percent at $32.05.
(Reporting by Mihir Dalal and Santosh Nadgir in Bangalore;
Editing by Unnikrishnan Nair)