Caribou Coffee Company Inc. inked a definitive merger agreement with German private equity company, Joh. A. Benckiser (JAB) Group. Per the deal, JAB will acquire Caribou Coffee through an all-cash deal worth approximately $340 million or $16.00 per share.
The offer price is at a 30% premium to Caribou Coffee’s closing stock price as on December 14, 2012, the last trading day prior to the announcement of the transaction. Upon the closure of the deal, Minneapolis, Minnesota-based Caribou will continue to operate as an independent company retaining its brand, management team and growth plan. The deal is expected to be sealed in the first half of 2013.
JAB and its affiliates focus on investments in premium brands in the rapidly growing Consumer Goods category. There is another U.S.-based coffee roaster cum retailer in JAB’s portfolio ??? Peet's Coffee and Tea. JAB group took over Peet in October this year. Apart from Peet, JAB group has a minority stake in D.E Master Blenders 1753 N.V., an international coffee and tea company.
We view the deal as strategically positive as it holds immediate cash value for the shareholders of Caribou at a premium over the current trading value. The deal will likely benefit this second-largest company-owned premium coffeehouse operator of the U.S. as its acquirer also operates in the same vertical and has prior knowledge of handling coffeehouses.
On the other hand, the acquisition holds significant promise for JAB Group as well. Apart from enjoying a leading position by the virtue of its size, Caribou stands out to be a lucrative acquisition target given its strong growth strategy, untainted balance sheet and solid fundamentals.
As of September 30, 2012, Caribou Coffee had 610 coffeehouses, of which 408 were company-owned and 202 franchised. It remains focused on unit growth of 10%???12% in 2012 and 2013.
Caribou’s association with JAB will bring greater diversity to the latter’s consumer products business and prepare the German company to strive in the specialty coffee market through sector consolidation.
As far as valuation goes, a few analysts believe that the offer price does not complement the company’s potential. The offer price of $16 per share is substantially below Caribou’s 52-week high of $18.84 per share as well as the recent target prices set by several analysts.
However, the analysts believe that a competing bid for Caribou Coffee is unlikely. Caribou which competes with the likes of Starbucks Corp. (SBUX - Analyst Report) and Dunkin' Brands Group Inc. (DNKN - Analyst Report) currently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
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