Green Mountain Coffee Roasters Inc, maker of the popular Keurig single-cup coffee brewer, said on Wednesday that the Coca-Cola Co (KO.N) bought a 10 percent stake in it for $1.25 billion and would help launch Green Mountain's new cold drink machine planned for next year.
Shares in Green Mountain GMCR.O soared 39.7 percent to $113.01 in extended trading, while those of its likely new rival, SodaStream International Ltd (SODA.O), tumbled almost 10 percent to $32.01.
Under their 10-year agreement, Green Mountain and Coca-Cola will collaborate on the development and introduction of Coca-Cola products on Green Mountain's upcoming in-home cold beverage machine that will serve both carbonated and non-carbonated beverages, including soft drinks, tea and juice.
The deal will make Green Mountain the exclusive partner for the production and sale of Coca-Cola's branded single-serve, pod-based cold beverages, the companies said.
Green Mountain's Keurig machine popularized the use of pods - containing everything from coffee, tea or hot chocolate powder - for easy, in-home, one-cup brewing of hot drinks.
Its upcoming cold drink machine also will use pods and will carry products from multiple brands, Green Mountain's President and Chief Executive Brian Kelley said on a conference call with reporters.
"This gives Green Mountain a beverage partner with some hugely powerful global brands. For Coke, it gives them access to some really cool, new cutting-edge pod cold-beverage technology," said John Sicher, editor and publisher of Beverage Digest.
"It gives them (Coke) access to a new channel," said Sicher. He said soda sales in the United States have been in decline since 2005, while growth in pod-based coffee brewing has boomed.
Under the terms of the agreement, Coca-Cola will acquire roughly 16.7 million newly issued shares of Green Mountain. The new shares have been priced at $74.98, which represents the trailing 50-trading-day volume weighted average price as of market close.
The significant after-hours move in Green Mountain's stock appeared to be a classic short squeeze as traders who bet against the stock scrambled to cover their positions.
David Einhorn, who runs hedge fund Greenlight Capital Inc., was among investors with short positions in Green Mountain as of October 15. Greenlight's spokesman declined to comment to Reuters on Wednesday.
The most recent data from Nasdaq, which dates to January 15, had short interest in Green Mountain at about 25 percent of shares outstanding - about 37.6 million shares. That's lower than peak short interest in November 2012, when more than 51 million shares were being shorted.
The average consumer staples company has just 1.6 percent of shares held short, according to Thomson Reuters Starmine.
Green Mountain separately reported better-than-expected quarterly profit on Wednesday.
The Waterbury, Vermont-based company reported net income of $138.2 million, or 91 cents per share, for the fiscal first quarter ended December 28, up from $107.6 million, or 70 cents per share, a year earlier.
On an adjusted basis, the company earned 96 cents per share - 6 cents better than analysts on average had expected, according to Thomson Reuters I/B/E/S.
Net sales rose almost percent to $1.39 billion.
Green Mountain also plans to launch a new hot drink brewing system this fall. Called Keurig 2.0, it will use both single-serve K-Cups and larger-sized K-Carafe packs that brew 28 ounces of coffee.
(Additional reporting by David Gaffen and Jennifer Ablan in New York; Editing by Steve Orlofsky and Ken Wills)