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Coca-Cola Gulps Down $1.3B Stake in Green Mountain Coffee Roasters

Stocks in this article: KO GMCR SODA PEP

NEW YORK (The Deal) -- Green Mountain Coffee Roasters (GMCR) is selling nearly 16.7 million shares or a 10% stake in the company to the Coca-Cola (KO) for about $1.25 billion, the two beverage companies announced Wednesday after the market close.

Green Mountain's stock soared 52.81% in after-hours trading after closing at $80.88, while Coca-Cola's stock was up 0.77% after closing at $37.61 per share.

The newly issued shares are priced at $74.98 per share, equal to the trailing 50-trading-day volume weighted average price as of Green Mountain's market close Wednesday.

The investment is expected to close in March 2014. The exclusive deal is part of a 10-year agreement to develop and sell Coca-Cola's portfolio of brands for use in Green Mountain's Keurig-branded home appliance for making cold beverages.

Proceeds from the stock sale will be used for a share buyback, to reduce dilutions, as well as to fund capital expenditures for the cold beverage appliance over the next few years. The company already has an authorization for a $1.1 billion share buyback program.

Green Mountain also announced first quarter results for the period ended Dec. 28, noting sales were up 4% to nearly $1.4 billion and net income was up 28% to about $138 million, while operating income was up 24% to nearly $227 million.

The single-serve cold beverage system, which is still under development, will use single-serve pods to make cold beverages including carbonated drinks, enhanced waters, juice drinks, sports drinks and teas, in a manner similar to Keurig's hot beverage appliance.

It will compete with a similar product from SodaStream International (SODA).

Israel's SodaStream, which last year was rumored to be a target of Coca-Cola competitor PepsiCo (PEP) saw its Nasdaq-listed stock plummet 7.94% per share in after-hours trading after closing at $35.79.

Last summer PepsiCo dismissed the reports that it was in talks to acquire Tel Aviv-based SodaStream. after Israeli newspaper The Calcalist reported that the soda company had approached the beverage appliance maker via Goldman, Sachs & Co. The offer was said to be at least $2 billion or $95 per share for the company.

One investor who is likely to be unhappy about Wednesday's deal news is hedge fund manager David Einhorn, that is, if he still has his short bet against Green Mountain. In his October 2013 third quarter letter to investors, Einhorn said his hedge fund Greenlight Capital Inc. had added to its short position in the coffee pod vendor.

Einhorn's short thesis on Green Mountain was that it has been booking hundreds of millions of non-existent K-Cup sales. In his October investor letter, he noted a New York Times article that said there were discrepancies between Green Mountain's numbers and data from tracking firm IRI.

A Bank of America Merrill Lynch team that included David Finkelstein, Carl Stickel and Roman Makovitskiy provided Green Mountain with financial advice, while the company received legal advice from Baker & McKenzie LLP

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