Ending Coffee Buyout Wars (DDRX, GMCR, PEET)

It seems that the saga over the coffee buyout war is ending as it pertains to Diedrich Coffee, Inc. (NASDAQ: DDRX).  Peet’s Coffee & Tea, Inc. (NASDAQ: PEET) was set to respond by today with an answer over what it planned to do in response to the Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR) bid to acquire Diedrich.  The price of poker, or coffee, became too high.  Peet’s is walking away from the table.

Peet’s Coffee & Tea issued a press release after the recent higher bid and notice by Diedrich that Green Mountain’s bid was superior to Peet’s most recent proposal.  Peet’s said it will “not further enhance its proposal” and in fact it backed off its $32.50 enhanced offer which has now expired and will only leave in place its exchange offer to acquire Diedrich for a combination of cash and stock valued at $26.00 per share.

Peet’s did caution, “It is our view that there are significant antitrust issues and resulting timing and closure risks associated with GMCR’s competing proposal.”   Our take on this merger is that there is not and was probably not much anti-competition really at stake.  With Starbucks, McDonald’s, Krispy Kreme and Dunkin all being in the space, the antitrust review here is likely to be nothing more than the formal wait period and a rubber stamping.

Green Mountain and Diedrich will be required to file for Hart-Scott-Rodino antitrust clearance.  Unless the deal is blocked or unless one of the parties backs out, that puts the war for Diedrich Coffee with Green Mountain as the bid winner for $35.00 per share in cash.  Since Peet’s is not enhancing its proposal, Diedrich is entitled to terminate the Peet’s merger agreement today.

Peet’s did not want to let this deal get away, but only up to a certain point (or a certain price).  Diedrich was a penny stock at the start of the year and it screamed higher in the latest coffee roaster consolidation boom.  Peet’s shareholders are somewhat happy that the company won’t be leveraging up again to buy Diedrich as Peet’s shares are up almost 3% at $31.85 in the after-hours session.  Green Mountain is hardly changed in the after-hours with shares at $60.40 versus a 52-week range of $21.08 to $94.50.  Green Mountain’s market cap is over $2.6 billion and Peet’s is just over $400 million versus the Diedrich market cap of right around $200 million at $35.00.

Jon C. Ogg