The Deal That Couldn't Be Is: Starbucks & Green Mountain (SBUX, GMCR, KFT)

Starbucks Corporation (NASDAQ: SBUX) did end up signing a pact with Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR).  The move was obvious to some, but will be shocking to others.  Starbucks has been in a move to ditch its Kraft Foods Inc. (NYSE: KFT) pact for some time and many thought that Starbucks would in-house this effort for the single-serving packets.

This partnership is one of those mergers without a merger.  In some ways this pact will seem like the rhetorical question of how porcupines make love… very carefully.  Green Mountain came on the scene in recent years and Starbucks had been the trend-setter for over a decade before some peaking issues came up a few years ago.  It seems that the easiest path here was to embrace the competition to keep them from going around you.

The two companies announced a strategic relationship for the manufacturing, marketing, distribution and sale of Starbucks and Tazo tea branded K-Cup portion packs for use in Green Mountain’s Keurig Single-Cup brewing system. Keurig Single-Cup Brewers will now have the additional choice of Starbucks branded coffees available for their brewers.  Starbucks gets to expand its premium single-cup coffee efforts to make its coffee more conveniently available to consumers whether they want to go to a Starbucks store or not.

As part of he deal, Starbucks is now the exclusive coffee brand produced by Green Mountain for the Keurig Single-Cup brewing system.  Both companies plan to make the Starbucks K-Cup portion packs available in the Fall of 2011 and the offerings will be through all of the existing retail channels available in the U.S. and Canada.

The deal is a huge win for Green Mountain Coffee Roasters.  It is still far too early to get a read for where shares will open, but the early indications after 7:00 AM were up between $48.50 and $49.00.  Green Mountain closed at $43.65 yesterday and its 52-week trading range is $21.83 to $47.81.

• UPDATE 8:45 AM EST: Green Mountain shares are up 25% at $54.86 on more than 2.1 million shares and Starbucks shares are up 7.6% at $37.17 on almost 750,000 shares with 45 minutes to the open.

Kudos to Scott Van Winkle of Canaccord Genuity… He stuck his neck out calling for a definite partnership back on February 14 when shares had closed at $43.46 the day before.  Who says analysts never get it right anymore?

JON C. OGG