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Should Starbucks Buy Peet's Coffee?

While a number of large companies often buy up smaller firms without customers realizing it -- think Hershey's (HSY) ownership of Scharffen Berger Chocolate and Colgate-Palmolive's (CL - Get Report) acquisition of Tom's of Maine -- that could be unlikely in this case, given the high-profile nature of the Starbucks-Peet's takeover rumors.

Pinheiro, who covers Peet's but not Starbucks, nevertheless attended the latter's analyst conference in New York last year, saying that he "was impressed by the enormous opportunity they have to deploy capital in China.... Why they would spend capital anywhere but on international growth at least for a year or two is beyond me."


He said Kraft Foods (KFT) would make more sense as a bidder for Peet's, especially since it no longer carries a premium coffee brand since its distribution partnership ended bitterly with Starbucks on March 1.

Pinheiro said any buyer of Peet's would have to pay a premium to the company's current market capitalization, around $617.4 million as of Friday's closing price. He estimated Peet's could fetch as much as $700 million to $800 million.

Starbucks hinted last month that a partnership such as the one with Green Mountain was in the works when it told news outlets in February it had plans to announce a new product for the single-serve coffee market "in the near future." The Seattle coffee shop chain did announce a distribution agreement with Courtesy Products, a privately held provider of in-room coffee service to hotels across the U.S.

Starbucks already sells individual instant coffee packets under its Via brand, but speculation among analysts had been mounting that Starbucks was poised to push more aggressively into the single-cup brewing market now dominated by Green Mountain's Keurig machines and K-Cup portion packs .

Analysts from Credit Suisse estimated that the Green Mountain deal will add 15 cents per share to Starbucks' earnings in fiscal 2012, and 23 cents per share in fiscal 2013. The partnership also adds weight to Green Mountain's Keurig platform, already the leader in the at-home and in-the-office single-cup brewing market.

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