Acquisition by Green Mountain

Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report) recently acquired Timothy’s Coffees of the World, Inc., an affiliate of Sun Capital Partners, Inc. The acquisition was a cash transaction of approximately $157 million.

The acquisition includes the Timothy’s World Coffee brand and the wholesale business. However, the deal does not include retail operations. The retail portion of the Timothy’s business has been purchased by Bruegger’s Enterprises, Inc. and will continue to support the Timothy’s brand across Canada . The acquisition includes a five-year coffee supply agreement with Bruegger’s Canadian affiliate and management expects to expand its relationship with Bruegger’s Enterprises as it already supplies to all of GMCR’s 290 locations in the U.S.

Timothy’s Coffees of the World, Inc will operate as a wholly owned Canadian subsidiary and the operations will be integrated into GMCR’s Specialty Coffee Business Unit. Timothy’s became a licensed roaster of Keurig, Incorporated, a wholly owned subsidiary of GMCR, in 2000.

GMCR expects the acquisition to be accretive to its earnings per share in fiscal year 2010. The acquisition is considered to be a strategic fit for GMCR as Timothy’s is a premium coffee company that produces specialty coffee, tea and other beverages in a variety of packaged forms. Timothy’s also produces K-Cup portion packs for the Keurig Single-Cup Brewing System that are sold under the Timothy’s World Coffee, Emeril’s and Kahlua Original K-Cup brands.

Furthermore, the acquisition will not only give GMCR a Canadian presence but also will provide a coffee roasting facility in Toronto . This will enable GMCR to accelerate its geographic expansion with a Canadian brand platform that includes manufacturing and distribution synergies.

After the acquisition, GMCR revised its estimates for fiscal 2010. The company now expects consolidated net sales growth in the range of 55% to 60% compared to the previous guidance of 50% to 55%. Annual GAAP earnings are now expected to be in the range of $1.85 to $1.95 per share. Previous guidance was $1.75 to $1.85. The guidance include $14 million pre-tax or $0.18 per share non-cash amortization expenses related to the identifiable intangibles of the company’s acquisitions.The guidance also includes estimated acquisition expenses related to the Timothy’s acquisition.

In addition, capital expenditures for fiscal 2010 are expected in the range of $95 million to $115 million compared to $90 million to $110 million stated earlier.

The company also revised its guidance for the first quarter of fiscal 2010. Net sales growth is expected in the range of 65% to 70% compared to the previous estimate of 61% to 66%. Quarterly GAAP earnings are expected in the range of $0.12 to $0.16, up from the previous guidance of $0.11 to $0.15 per share. The guidance includes estimated acquisition transaction expenses related to the Timothy’s acquisition.

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