For Peet's Sake, Green Mountain, Stop!

There's just no stopping the insanity at Green Mountain Coffee Roasters (Nasdaq: GMCR  ) . The java junkie continues to raise its bidding card in its pursuit of Diedrich Coffee (Nasdaq: DDRX  ) , and now things are just getting ridiculous.

Green Mountain offered an enhanced bid of $35 a share in cash last night, easily topping the current Peet's Coffee (Nasdaq: PEET  ) offer of $32.50 a share in stock and cash.

This bidding war began nearly a month ago, when Peet's announced that it would buy Diedrich for $26 a share. Green Mountain then stepped in with a $30 buyout proposal. After volleys of $32 in cash and stock, $32 in cash, and $32.50 in cash and stock, Green Mountain is once again the top bidder at $35 in Green green.

Diedrich has been one of the biggest winners during this market rally. The stock was trading for as little as $0.21 a share back in March. However, Diedrich's success with its K-Cup portion packs for Green Mountain's Keurig coffee makers have generated explosive profitability.

I can't be the only one wondering why Green Mountain is so hot for a company it's already profiting from. Green Mountain makes money two ways through its Keurig empire. It can buy coffee from leading brands and have them packaged into K-Cups, or it can license the process and collect a few pennies for every K-Cup sold by a third-party beanery. That won't change if Peet's owns Diedrich. If anything, it may be a way for Peet's to hop aboard. Starbucks (Nasdaq: SBUX  ) and Peet's are just a few of the big-name no-shows to the K-Cup party so far.

Green Mountain can have Diedrich if it wants to. It has the liquid resources to keep raising its all-cash offer. Peet's has to go the cash and stock route, and the stock takes a hit whenever it raises its bid.

Diedrich would look good on Peet's arm. It was a penny stock eight months ago, but Diedrich's Coffee People and namesake K-Cups are selling briskly these days. Green Mountain continues to expand its Keurig empire. Wal-Mart (NYSE: WMT  ) became a distributor this year. Jarden's (NYSE: JAH  ) Mr. Coffee and Conair's Cuisinart will begin rolling out new coffee makers that require K-Cup refills next year.

Peet's can't ignore the K-Cup revolution, but it certainly doesn't need Diedrich to give it a go. Like a pesky dog gnawing on a mailman's foot, Green Mountain isn't going to let go of Diedrich. Peet's needs to recognize this and bow out before it embarrasses itself. Let Green Mountain be the one to face its other K-Cup partners with the conflict of interest that deal may represent. 

What do you think of the K-Cup revolution? Share your thoughts in the comment box below.

Green Mountain Coffee Roasters is a Motley Fool Rule Breakers recommendation. Starbucks is a Motley Fool Stock Advisor selection. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days. They'll wake you up!

Longtime Fool contributor Rick Munarriz can walk to three Starbucks stores from his home, but even though he's not much of a coffee sipper, he's had a Keurig brewer in his home for two years now. Rick owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 02, 2009, at 3:06 PM, JMac wrote:

    As I have followed the PEET/GMCR/DDRX saga over the last month, I keep hearing that if GMCR gobbles up DDRX, then it will own roughly 85% of the K-Cup market. Does anyone know who comprises the remaining 15%? Is that player(s) a potential acquisition target that PEET can turn to next?

    As I understand, GMCR purchased another K-Cup licensee earlier this year for over $150MM. Assuming they complete the DDRX deal, they would be leveraging themselves by nearly half a Billion dollars. Could they keep bidding on other K-Cup licensees?

  • Report this Comment On December 03, 2009, at 1:11 PM, lawgman wrote:

    I believe the only remaining non GM owned or distributed K-Cup licensee is Van Houtte. The last time Van Houtte was sold (2007) it was sold for $600 million to a privately held investment firm. Van Houtte is Canadian based and is a major player in the office coffee services industry. It also has a nice amount of shelf space in Canadian grocery stores and has a development arm that develops coffee systems for the workplace. Keurig and K-Cups is only one of their offerings. They are probably too big of a company for either GMCR or PEET to purchase

  • Report this Comment On December 03, 2009, at 1:20 PM, lawgman wrote:

    After this deal, Keurig will have only one other partner - Van Houtte. Van Houtte has also done some office place machine development work for Keurig in the past. Not sure there will be any "strain" in their relations.

    This article makes it sound like Peets and Starbucks can enter the K-Cup market whenever they want when they can't (which is why there is a bidding war for the last affordable licensee). GM controls when and who will get a license.

    GM makes 2x the amount of profit selling their own K-Cups versus collecting license fees. They would rather own Deidrich then have Peets expand the line of K-Cups. An expanded Peets line of K-Cups may cut sales of GM's own K-Cups and bring a lower license revenue.

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