(Adds comments from JAB Holding Co chairman, background)
May 7 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
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
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
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.
(Reporting by Martinne Geller in London, Siddharth Cavale and
Maria Ajit Thomas in Bangalore and Lisa Baertlein in Los
Angeles; Editing by Ted Kerr, William Hardy and Peter Galloway)