Green Mountain Now One With Diedrich, Time To Execute (GMCR, PEET)

Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR) has completed its acquisition of Diedrich Coffee.  Peet’s Coffee & Tea Inc. (NASDAQ: PEET) was in a fight to secure Diedrich, but Green Mountain emerged victorious… sort of.   The deal closed at close to $300 million. Due to the deal, Green Mountain tapped its credit line and we expect analysts over the next few days to tweak their forward numbers on revenues and earnings.

The company noted that about 5,446,334 shares had been tendered and not properly withdrawn pursuant to the tender offer.  This represents about 95% of the outstanding shares. as of the tender offer’s expiration date.

The effect of the deal is that this brings in Diedrich, Gloria Jean’s and Coffee People brands under one roof.  Green Mountain is also gaining manufacturing and distribution facilities in California so that it can be geographically closer to that region.  Other locations in manufacturing and distribution will be as follows:

• Waterbury, Vermont;
• Essex, Vermont;
• Castroville, California;
• Knoxville, Tennessee;
• Sumner, Washington;
• Toronto, Ontario Canada.

Excluding transaction costs, the company maintains the stance that the acquisition will be neutral to slightly accretive within the first twelve months after the close.  It maintains that this will be accretive to earnings after the first twelve months.

Green Mountain said that it amended its revolving credit agreement to provide for a new term loan for $140 million, a new uncommitted revolver increase option of up to $100 million and increases in the permitted amounts of certain forms of indebtedness and investments. As noted above, Green Mountain did execute the $140 million new term loan to help pay for a portion of the purchase price of Diedrich.

We will have to wait for analyst to increase and decrease the numbers ahead where applicable. Thomson Reuters has 2010 estimates of $2.07 EPS and $1.32 billion in revenues.  For 2011, those estimates are $2.97 EPS and $1.75 billion in revenues.  Now that the deal has closed, Green Mountain will likely see slight adjustments to earnings and revenues based upon the new combined operations.   As far as an average price target, analysts are still calling for more than $100.00 per share per Thomson Reuters.

The $300 million used for the merger compares to a market capitalization of $3.41 billion.  Maybe Peet’s Coffee & Tea was the real winner in this deal despite losing the bid.  Peet’s Coffee & Tea trades at $38.06, a 9.8% discount from its 52-week high of $42.20.  Green Mountain shares trade at $78.00, a discount of more than 21% from its 52-week high of $99.61.

Now it is time for Green Mountain to go execute on its combined strategy.

JON C. OGG