Luigi Lavazza likes what it sees in Green Mountain Coffee Roasters (Nasdaq: GMCR). The Italian coffee giant is investing $250 million in the fast-growing maker of Keurig single-cup brewers and K-Cup portion packs.
In return, Lavazza gets a 7% stake of freshly printed shares, and it'll have the right to purchase as much as 15% of the company.
Is this validation for Green Mountain, or dilution for its shareowners? It's a little bit of both, although the way that Green Mountain has been snapping up regional coffee faves and leading K-Cup suppliers, the balance sheet-buffing investment could also make Green Mountain an even bigger acquisition target.
However, perhaps the neatest wrinkle in the deal is that the two companies will combine to create a Keurig-esque machine for high-end espresso brews.
A pod-based, single-serve espresso machine isn't new. Global juggernaut Nestle (OTC BB: NSRGY.PK) has its Nespresso appliance. Kraft's (NYSE: KFT) Tassimo and Sara Lee's (NYSE: SLE) Senseo brew up a wide array of Euro-style coffees. Heck, even Lavazza markets its own BLUE espresso maker.
If anything, Lavazza has indicated that making a stateside splash in the single-cup espresso market will be easier through Green Mountain -- even if the new device won't hit the market for at least another three years.
Green Mountain doesn't need a second driver at the moment. Revenue soared 64% in its latest quarter, as the K-Cup craze invades homes, corporate break rooms, restaurants, and hospitality specialists. Even Jarden's (NYSE: JAH) Mr. Coffee and Conair's Cuisinart are cranking out machines that feed on K-Cups for gourmet java.
However, K-Cup patent timelines will come into play in a couple of years. With that deadline looming, Green Mountain is wisely exploring diversification opportunities.
Clearly, this is an expanding market. Starbucks (Nasdaq: SBUX) is growing again, despite Green Mountain's rising popularity. Through Green Mountain, Lavazza will be able to ride the industry's growth giant -- and fuel speculation regarding an outright acquisition, if the premium is right.
Now that the euro has finally showed some signs of life against the dollar, it wouldn't be a surprise to see more European food giants start to take a few sips of their American counterparts.
Are you buying into coffee companies these days? Share your thoughts in the comments box below.
