) -- Rumors of


(SBUX) - Get Report

looking to acquire

Peet's Coffee


may have been laid to rest -- for now -- and readers of


are glad about it.

Reports began circulating on March 15 that

Peet's and Starbucks recently held talks to discuss a potential sale. Details remained limited but Starbucks CEO Howard Schultz has indicated the Seattle coffee giant would look to make an acquisition, likely sometime this year.

"Though there have been no reports of any formal announcements regarding any merger or acquisitions from either companies, the analysts and industry sources claiming familiarity with Starbucks anticipate the takeover of the Emeryville, Calif.-based Peet's specialty coffee retailer and roaster by Starbucks," noted Zacks Equity Research last week.

>> Starbucks to Grow Grocery Business Tenfold

We asked readers to voice their opinions on whether a Peet's buyout by Starbucks was a good idea, and voters overwhelmingly agreed that no, Starbucks should continue to concentrate on growing its single-serve presence and focus less on store growth.

A total of 61.2% of the 605 ballots voted no, while just 38.8% voted in favor of the acquisition, agreeing that Starbucks' takeover of Peet's would allow it to further dominate the in-store coffee market.

On March 23 at Starbucks' annual shareholder meeting in Seattle, the rumor of a Peet's takeover seemed to be laid to rest when the company denied such notions, saying that any speculation it might announced an acquisition of Peet's was wrong.

It didn't appear that any of the comments posted at the end of our

poll were in favor of a Starbucks-Peet's takeover, though a number of readers were clearly opposed.


said, "I want Peet's to maintain its own identity, not be a sub-brand of a huge company."


asserted that Peet's "do not have the fast food mentality. They are superior and know their coffee. I will switch to shipments of Kona coffee to my house and call it quits," adding that "You can buy Peet's but Peetniks won't transfer over."


worried "how a mass distribution, along with Starbucks and Seattle's Best, could maintain the integrity Peetniks expect."


agreed that Starbucks should consider expanding through acquisition but had another target in mind: "Starbucks should expand beyond coffee. They should consider a company such as

Hain Celestial

(HAIN) - Get Report


Robert Baird

was emphatic: "If the deal goes through, Starbucks will suck the soul out of Peet's and I will be switching to

Blue Bottle

," referring to an organic microroaster based in Brooklyn, NY .

Peet's shares remain around 13% higher than the opening price on March 15, the day takeover rumors first began in earnest. The stock had plunged 11.4% on March 10, the day

Starbucks and

Green Mountain


announced a deal in which Starbucks and Tazo tea-branded K-Cup portion packs will be available for Green Mountain's popular Keurig single-cup brewing systems later this year. Investors were clearly disappointed that Emeryville, Calif.-based Peet's had been left out of the profitable partnership.

>> Starbucks, Green Mountain: K-Cup Deal

Starbucks shares are down around 2% since then.

Peet's has said it would look to make a move into the single-serve coffee market, a growth area Starbucks also plans to penetrate, evidenced by its recently announced partnership with Green Mountain.

Peet's would be an attractive target for Starbucks, some analysts said, given its mature distribution network and premium pricing. The pair already shares some history, too; Peet's was Starbucks' original coffee bean supplier in 1971, according to the

Financial Times


"If Starbucks buys the coffee roaster, it can use Peet's relationships with major retailers, who will allow a "triad of premium brands" on store shelves, with Peet's offering super-premium, Starbucks as premium and Starbucks' secondary brand Seattle's Best Coffee positioned as "fighting" premium," Zacks noted.

At Starbucks' annual shareholders meeting in Seattle this week,

CEO Howard Schultz told investors he wants sales of Starbucks coffee and other products at grocery stores and other retail outlets to rival its traditional coffee shop business, meaning the operating segment would have to grow more than tenfold from its 2010 revenue of $707.4 million.

Peet's super-premium brand offering on store shelves could help Starbucks progress toward that ambitious goal.



-flavored coffees would also give Starbucks leverage if it enters the single-cup brewer market, which many perceive as a huge area of growth in the coffee industry," Zacks added.

Zacks maintained a neutral rating on Peet's shares, and held a Zacks #3 Rank for Starbucks, indicating a short-term hold rating.

Still others cautioned the rumors of a takeover remained just that, arguing that an actual deal was still extremely speculative. Some considered that Starbucks would be more likely to consider acquiring a food and/or confections company as it looks to expand its operations beyond coffee.

Earlier this year

Starbucks unveiled a new, wordless logo. At the time, CEO Schultz said that the wordless logo, in part, "gives us the freedom and flexibility to think beyond coffee."

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.


Kraft Foods'


Tassimo's success with some consumers, Green Mountain's Keurig brewing system enjoys market share of around 80%, according to


, dominating other competitors as well, including

Sara Lee's


Senseo brewer and

Nestle SA's

(NSRGY) - Get Report

Nespresso system.

Peet's retail stores may compete too closely with the in-store operations of Starbucks to make a merger financially viable, said some industry experts.

Sources told

Financial Times

that Peet's would be a better target for companies like

Kraft Foods


Nestle SA's


Janney Capital Markets analyst Mitchell Pinheiro said a Peet's buyout by Starbucks would dilute the buyer's marketing bandwidth. "Why would you need another super-premium coffee brand, when I'd argue Starbucks is the number one super-premium coffee brand in the country, if not the world?" he asked.

He added that devoted Peet's customers, known as "Peetnicks," are typically anti-Starbucks and could become disillusioned with the brand if Starbucks were to take it over, choosing instead to spend their coffee dollars elsewhere.

While a number of large companies often buy up smaller firms without customers realizing it -- think


(HSY) - Get Report

ownership of

Scharffen Berger Chocolate



(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

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.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here:

Miriam Reimer


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