December 8, 2009, 12:00 AM

Green Mountain wins tug-of-war for Diedrich Coffee

Green Mountain Coffee Roasters will acquire Diedrich Coffee for $35 per share, or about $290 million. The companies announced the merger agreement today, ending a month-long duel between Green Mountain and Peet’s Coffee & Tea.

Zak Stambor

Managing Editor

Green Mountain Coffee Roasters Inc. will acquire Diedrich Coffee Inc. for $35 per share, or about $290 million. The companies announced the merger agreement today, ending a month-long duel between Green Mountain and Peet’s Coffee & Tea Inc.

Green Mountain Coffee Roasters is No. 120 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name). Green Mountain and Diedrich are both coffee and coffee-related products e-retailers and wholesalers.

Green Mountain’s winning bid was about 9.4% higher than the $265 million, or $32 per share, it offered on Nov. 25. On that date, Diedrich announced that Green Mountain’s all-cash bid had bested a similarly valued offer from Peet’s that included stock as well as cash.

Today, Diedrich announced it had accepted Green Mountain’s offer and that Green Mountain would pay the $8.5 million merger termination fee based on a Nov. 2 agreement between Peet’s and Diedrich. Peet’s original bid was valued at $213 million.

Peet’s made a final offer valued at $32.50 per share, or $269 million, in cash and Peet’s stock on Nov. 30, and that offer expired the following day, Diedrich says. An opportunity for Peet’s to revise its last offer expired yesterday, at which time Diedrich says its board of directors recommended accepting the Green Mountain offer.

Peet’s announced today that it would stand by an earlier offer of about $26 per share, or $215 million, while the Green Mountain/Diedrich agreement undergoes regulatory review, including from antitrust regulators.

“We believe that a combination of Peet’s and Diedrich would enhance competition in the K-Cup single-serve market, benefiting retail trade customers, consumers and the future growth of the Keurig single-cup brewing system,” says Patrick O’Dea, president and CEO of Peet’s. The K-Cup is a plastic package that is inserted into a Keurig brewing device and in a few seconds yields a 7.25 oz. to 11.25 oz. hot beverage. “We expect to be in a position to close a transaction within a matter of weeks. Conversely, it is our view that there are significant antitrust issues and resulting timing and closure risks associated with GMCR’s competing proposal.”

Keurig, a manufacturer of one-cup coffeemakers and the K-Cups that contain the coffee, is a Green Mountain subsidiary.

Green Mountain says it expects the transaction to gain regulatory approval and close in early 2010. The merger agreement includes a graduated reverse break-up fee structure that starts at $8.5 million for a termination prior to Feb. 15, 2010, and increases by $1 million in each subsequent 60-day period through June 15, 2010, the company says. The termination fee would be paid to Diedrich “in the unlikely event that regulatory approvals are not obtained under the terms and conditions of the merger agreement,” Green Mountain says.

“We are delighted to have entered into a definitive merger agreement with Diedrich and look forward to realizing the substantial benefits of this transaction,” says Lawrence J. Blanford, president and CEO. “This combination further advances our objective of becoming a leader in the highly fragmented and competitive coffee and coffee-maker businesses and provides significant growth opportunities for GMCR stakeholders. In particular, adding Diedrich’s three strong brand platforms, which are highly complementary to GMCR’s brands, as well as its manufacturing and distribution facilities in California will, upon completion of this transaction, enable us to more effectively reach consumers across North America and do so with an enhanced array of coffee choices.”

Diedrich’s brands include Diedrich, Gloria Jean’s and Coffee People.

Green Mountain’s acquisition of Diedrich would be its second in the past month. On Nov. 15 Green Mountain acquired the coffee brand and wholesale operations of Toronto-based Timothy’s Coffees of the World Inc. for about $157 million in cash from an affiliate of private equity firm Sun Capital Partners Inc.

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