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Mondelez, D.E. Master Blenders Put Coffee Beans in One Pot

NEW YORK (The Deal) -- Mondelez International (MDLZ - Get Report) on Wednesday said it intends to spin its coffee business into a new venture with D.E. Master Blenders 1753 as part of a broader streamlining at the food and snack giant.

The combination, to be called Jacobs Douwe Egberts and be based in the Netherlands, is expected to generate more than $7 billion in sales and Ebitda margins in the high teens. The new company would rank as the world's largest pure-play coffee operation, boasting brands including Jacobs, Carte Noire, Gevalia, Douwe Egberts and Senseo.

Mondelez's wholly-owned coffee business generated about $3.9 billion in sales in 2013, while D.E. Master Blenders produced revenue of about $3.4 billion during the same period. The deal does not include Mondelez's coffee operations in France, but D.E Master will make a separate offer for that business.

Terms of the deal call for Deerfield, Ill.-based Mondelez to receive $5 billion in cash and 49% of the equity of Jacobs Douwe. D.E. Master owner Acorn Holdings BV will hold a majority stake in the combination and control the board, which will be chaired by current D.E Master chairman Bart Becht.

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The deal is expected to close in 2015, with the companies pledging to start work with work councils and other employee representatives prior to completion. The new company's executive leadership team will be named at a later date, with representatives from both existing entities expected to be included.

The combination is part of a broader $3.5 billion restructuring inside Mondelez expected to cut about $2.5 billion in cash costs and $1 billion in non-cash costs by 2018. The company, home to brands including Cadbury, Oreo, Nabisco biscuits, Tang and Trident gum, has been under pressure from activists including Nelson Peltz and Ralph Whitworth to improve margins or overhaul management.

Company chairman and CEO Irene Rosenfeld in a statement said that the coffee deal should create "substantial value" for shareholders while holding on to some potential upside. "By retaining a significant stake in the combined company, we'll continue to benefit from the future growth of the coffee category and share in the synergies and tremendous upside of this leading, one-of-a-kind coffee company," Rosenfeld said.

Meanwhile Acorn, which is backed by German holding company Joh. A. Benckiser GmbH, continues to consolidate the coffee business. The group last year acquired D.E. Master for about $10.01 billion, and also has majority stakes in both Peet's Coffee & Tea Inc. of Emeryville, Calif., and Minneapolis-based Caribou Coffee Co.

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