Mondelez has recently announced that it will combine its coffee business with the Dutch company D.E Master Blenders to become a global coffee powerhouse that generates annual revenues of more than $7 billion. Mondelez's coffee brands were responsible for $3.9 billion in revenues in 2013.
Mondelez's coffee business and D.E Master Blenders, the world's second and third largest players in the coffee industry, will create the world's second biggest coffee company, called Jacobs Douwe Egberts.
Mondelez will hold a 49% stake in the new company while the German parent of D.E Master Blenders, JAB, a holding company, will have the controlling stake.
Through this move, Mondelez can improve its earnings per share, compete more effectively with the food behemoth Nestle SA (NSRGY) in the coffee market, increase its focus on its core business and expand its margins.
Mondelez's shares are up more than 5% since it made the coffee announcement on May 7 and closed at $37.24 on Friday.
Upon completion of this deal in 2015, Mondelez will receive $5 billion as cash (after tax). The good news for shareholders is that the company intends to use more than 50% of the proceeds for buying back shares. The remainder will be used to pay off some of its debt. Through these two measures, the company will be able to reduce the number of its shares and will cut down its interest expense, which should give a boost to its earnings per share.