Green Mountain Orders Another Cup

In a deal that can best be summed up as "All your K-Cups are belong to us," Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is buying up the Canadian parent of Van Houtte in a deal valued at $890 million.

As the company behind the Keurig single-cup coffee brewers, Green Mountain is no stranger to Van Houtte. It's one of the many companies cranking out the K-Cups that fuel Keurig's caffeinated concoctions. Van Houtte's "pinkies up" flavors include chocolate raspberry truffle and spicy Mayan chocolate.

The press release doesn't indicate privately-owned Van Houtte's profitability, though it has achieved revenue of $433 million over the past 12 months -- implying an attractive price-to-sales multiple that is roughly half of what Green Mountain is currently fetching.

Perhaps more importantly, this lands another powerful K-Cup partner with a strong regional influence in Green Mountain's back pocket.

I'll admit that I was initially puzzled when I saw Green Mountain enter into a bidding war with Peet's (Nasdaq: PEET  ) for K-Cup specialist Diedrich Coffee last year. However, now that Green Mountain has gone on to load its trophy case with Diedrich, Tully's, Timothy's, and now Van Houtte, it's clear that the company wants to buy its more prolific K-Cup partners.

Looming patent uncertainties likely play a part here. If K-Cup patents do expire, Green Mountain is hoping to replace the healthy trickle of licensing fees with actual ownership of the K-Cup providers that stand to benefit from the elimination of those fees. It's a brilliant insurance policy, even if it will remain an incomplete work of art.

Green Mountain won't be able to corner the entire market. J.M. Smucker (NYSE: SJM  ) recently announced that it would enter the K-Cup business with its Folgers and Millstone brands. There's no way that Green Mountain will ever be able to unhinge its jaws wide enough to swallow that company down. The same goes for Starbucks (Nasdaq: SBUX  ) , should it ever dive into the K-Cup market.

However, Green Mountain's purchasing spree ensures that the Vermont-based company will be able to profit, no matter who's cranking out the K-Cups.

What do you think of Green Mountain's acquisitive strategy? Share your thoughts in the comment box below.

Green Mountain Coffee Roasters is a Motley Fool Rule Breakers pick. Starbucks is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services, free for 30 days. They'll wake you up!

Longtime Fool contributor Rick Munarriz can actually walk to three Starbucks from his home, but he's still not much of a coffee sipper. He's had a Keurig brewer in his home since Christmas 2007. He does not own shares in any of the companies in this story. He 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.


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7/22/2014 3:47 PM
GMCR $121.68 Up +0.94 +0.78%
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PEET.DL $0.00 Down +0.00 +0.00%
Peet's Coffee & Te… CAPS Rating: *
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Starbucks CAPS Rating: ****
SJM $105.04 Down -0.05 -0.05%
J.M. Smucker CAPS Rating: ****

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