How Coca-Cola Wins from JAB's $13.9 Billion Keurig Buyout

Who says someone's loss is someone's gain? Here's a merger which is a win-win for all the parties involved.

Keurig Green Mountain, Inc. GMCR, on Monday, announced its decision to go private pushing its share price 72% higher than Friday's close. This proved to be great news for The Coca-Cola Company KO which owns around 17% stake in specialty coffee retailer.

Keurig entered into a deal to be acquired by an investor group led by Germany's JAB Holding for $13.9 billion or $92 per share — a premium of around 78% to Friday's closing price. The group also includes Mondelez International, Inc. MDLZ and affiliates of BDT Capital Partners.

Coca-Cola reportedly stands to make a profit of around $25.5 million on its investment in Keurig, if the merger gets through. Prior to the announcement, this investment was reportedly worth a loss of approximately $1 billion.

Coca-Cola bought 10% stake in Keurig Green Mountain in Feb 2014 and subsequently increased it to 17% this year.

Coca-Cola also has an innovative partnership with Keurig Green Mountain under which the latter will exclusively make Coca-Cola branded single-serve pods for its Keurig Cold at-home beverage system. Keurig Kold, which debuted in late September, is a beverage system that allows consumers to brew fresh cold sparkling and still beverages at home.

However, Keurig Kold proved to be a dampener and the roll-out was slower than expected because of its steep price. Keurig has been suffering from waning sales of its K-Cup packs as well as brewers.

A couple of analysts are of the opinion that if Keurig's buyers can make Keurig Cold a success, it should benefit Coca-Cola as the deal opens up an exciting new packaging format for Coca-Cola's brands. Keurig has also inked a similar deal with another beverage company, Dr Pepper Snapple Group, Inc. DPS.

JAB is a private investment firm which owns majority stakes in other coffee companies like Jacobs Douwe Egberts ("JDE"), Peet's Coffee & Tea and Caribou Coffee.

Both Coca-Cola and Keurig Green Mountain carry a Zacks Rank #3 (Hold).

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