A German conglomerate announced Monday it is acquiring Emeryville, Calif.-based Peet's Coffee & Tea for nearly $1 billion, giving the pioneering premium coffee-maker more financial muscle to compete against larger rival Starbucks.
Joh. A. Benckiser, the investment arm for the Reimann family of Germany, indicated it will keep Peet's current leadership. While lovers of Peet's dark-roasted coffees shouldn't see any changes, shareholders of the company are enjoying a financial jolt from the $73.50-a-share-deal, a premium of nearly 29 percent over Peet's July 20 closing stock price of $57.16. On Monday, shares of Peet's surged nearly 28 percent, closing at $73.05.
Wedbush Securities analyst Nick Setyan, who believes Joh. A. Benckiser is getting Peet's at a bargain price, said it would make sense for Starbucks to make a third-party bid. Starbucks has never been able to grab the high-end coffee market, he said.
"There is still a little bit of a chance they could come in and give a counteroffer," he said. "It would be a strategic acquisition. They've never had the margins Peet's has. They can't charge that extra dollar that Peet's can. It's something they've always coveted."
A Starbucks spokeswoman declined to comment, saying the company doesn't address rumors or speculation.
Bart Becht, chairman of JAB, said in a statement that his company is " committed to owning and investing in companies with strong, premier-quality brands and great
people whose values we share. Peet's is just such a company and we look forward to preserving the company's culture and core values, while supporting management's vision for future growth."
Executives at Peet's were not available for comment. But in a statement, CEO Patrick O'Dea said, "We are very excited about this next chapter in Peet's rich history. Over many years we've demonstrated an unyielding commitment to craft coffees and teas of uncompromised quality. This commitment is what has distinguished the Peet's brand among all others and will continue to guide us as we go forward."
Peet's, which reported revenue of $372 million last year, forecasts growth of about 10 percent in 2012. It reported it had 196 company-owned stores and 116 licensed stores at the end of 2011. Peet's said it has slowed openings of company-owned outlets and is focused on selling its prepackaged coffees and teas in grocery stores, a business that experienced a 22 percent jump in revenue to $158 million last year.
The grocery-store business, though, is expected to become saturated after 2013, Setyan said. So much of Peet's growth would need to come from lower-margin store expansions. Going private, he said, will give the company the breathing room it needs to create a larger retail footprint.
"It behooves any company to go private for a few years (during such a shift) to shield themselves from public investor scrutiny and punishment the public markets have to deliver," Setyan said.
There is plenty of opportunity for Peet's retail operations to grow, which should make it much more valuable in a few years, he said. "Even in San Francisco, you have to go past five Starbucks to get to one Peet's," the analyst said.
Peet's, which has a devoted following among coffee connoisseurs in the Bay Area, was started by Alfred Peet, who opened the company's first store April 1, 1966, in North Berkeley, which is still located at 2124 Vine St. Unlike most coffee available to Americans at the time, Peet's served up brew made from high-quality, darkly roasted beans.
According to the company, Peet's supplied coffee beans to the three founders of Starbucks during their first year in business in 1971. In 1979, the founder sold his business, which five years later was acquired by Peet's former partner and one of the founders of Starbucks, Jerry Baldwin, and other investors. In 1987, Baldwin sold his share in Starbucks to focus exclusively on Peet's.
Joh. A. Benckiser owns majority stakes in companies such as Coty, a French beauty products manufacturer that partners with celebrities, including Lady Gaga, David and Victoria Beckham and Beyonce, who create their own fragrance products. It also owns Labelux, a luxury goods company with brands such as Jimmy Choo and Bally.
Joh. A. Benckiser's strategy is to buy strong companies without making leadership changes, Setyan said.
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