The Coca-Cola Company (NYSE: KO), a bitter enemy of SodaStream International Ltd. (Nasdaq: SODA), is acquiring 10% of Green Mountain Coffee Roasters Inc. (Nasdaq: GMCR) for $1.25 billion. The deal was made at $74.98 per share for Green Mountain, the average trading price in the 50 trading days preceding last Thursday announcement.
Green Mountain Coffee Roasters' share price rose 33% on Thursday and Friday to $107.75, giving a market cap of $16.1 billion. Coca-Cola has a market cap of $168 billion, and SodaStream has a market cap of $784 million.
Vermont-based Green Mountain Coffee Roasters plans to become a rival to SodaStream. Green Mountain, one of the hottest shares on Wall Street (its share price has more than doubled in the past 12 months) is a leading manufacturer of home coffee makers (including the disposable capsule, K Cup), under the Keurig brand. A year ago, its patents on the capsules expired, and generic companies entered the market (just like in the pharmaceuticals industry), and Green Mountain realized that it needed a new growth engine, and what would be more natural than replicating its success in hot beverages with cold beverages, including carbonated beverages such as the beverages of SodaStream.
Green Mountain will launch the Keurig Cold home beverages system in its 2015 fiscal year (which begins in October 2014), i.e. less than a year from now, and this is the reason for Coca-Cola's investment.
Under the ten-year cooperation agreement between Coca-Cola and Green Mountain Coffee Roasters, the two companies will develop and market carbonated and non-carbonated cold beverages using the Keurig Cold platform. Basically, consumers will be able to make Coke at home. This means that Coca-Cola, which is battling SodaStream with every possible means, is entering SodaStream's market at an investment of $1.3 billion - almost double SodaStream's market cap.
In effect, Coca-Cola is becoming a direct rival of SodaStream, allowing consumers to make Coke beverages at home with Keunig Cold machines. This will also allow Coca-Cola to become more environmentally friendly - responding to one of SodaStream's main charges against the company.
Coca-Cola did not make the investment just to annoy SodaStream. The beverages giant, which has been alive and kicking for 122 years, is thirsty for growth engines. The collaboration with Green Mountain Coffee Roasters is first and foremost a credit point for SodaStream, because it has legitimized the home carbonated beverages market, and legitimacy from a giant like Coca-Cola should not be ridiculed.
"This agreement demonstrates our creative approach to partnerships and ability to identify and stay at the forefront of consumer trends driving the industry," said Coca-Cola chairman and CEO Muhtar Kent in the statement announcing the collaboration. "This partnership provides our consumers with a convenient way to enjoy the brands they love through in-home preparation."
The important point is that the Keurig Cold machine has not yet been launched, which means that it has no track record, and most of all, it has not proven itself against SodaStream's huge marketing machine, vast experience, and strong brand. Only in a year, at least under Green Mountain Coffee Roasters' plan, will it be possible to know how its entry into the market will affect the Israeli company.
Published by Globes [online], Israel business news - www.globes-online.com - on February 9, 2014
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