On Feb 27, 2014, coffee maker Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report) closed the previously announced deal with beverage giant, The Coca Cola Company (KO - Analyst Report). Per the deal, Coca Cola took over 10% stake of the coffee maker for $1.25 billion at $74.98 per share.
In order to prevent the resultant dilution, Green Mountain intends to boost its share buybacks. Moreover, the company plans to use a portion of the proceeds to fund anticipated capital expenditures for its Keurig Cold beverage system over the next several years.
In early February, Keurig owner Green Mountain announced an agreement with Coca Cola as part of its strategy to step into the world of cold beverage and soda. Green Mountain is making a new Keurig brewer, ‘The Keurig Cold Machine’ which will enable people to make sodas, sports drinks and other beverages at home using specially-designed pods. In order to increase brand power, Green Mountain inked a 10-year partnership deal with Coca Cola. Under the deal, the former will exclusively make Coca-Cola branded pods for use on its upcoming Keurig Cold at-home beverage system. The two companies will also work on the development and launch of this latest version of Keurig single-cup brewer.
For Green Mountain, which currently carries a Zacks Rank #4 (Sell), the deal is a major way to leverage Coca Cola's branding and global presence. The expansion into cold beverages is an obvious growth opportunity for Keurig, the leader among the makers of single-cup coffee brewing systems used in offices and homes. Since coffee preferences vary from country to country, the global appeal of soda and carbonated beverage drinks will help Green Mountain target a larger customer base than the Keurig brewers.
Moreover, the alliance between Green Mountain and Coca Cola is a concern for SodaStream International (SODA - Snapshot Report) as the at-home soda machine maker could have some serious competition in the near future. After the Coca Cola-Green Mountain deal was announced there was a rumor in the market regarding a probable partnership between Sodastream and Pepsico Inc. (PEP - Analyst Report) to counter the former deal
Through the deal, Coca Cola not only acquires stakes in a Green Mountain but also be able to reach a larger base of consumers through the brew-at-home technology.