There's clearly a benefit to being spoken for in an otherwise rocky market. Shares of Keurig Green Mountain (NASDAQ:GMCR) inched 0.3% higher last week. That may not seem like much of a bragging point, but when you consider that the S&P 500 suffered a brutal 6% hit during the first week of trading of 2016 it's a pretty substantial victory on a relative basis.
Keurig Green Mountain didn't have any price-sustaining news break during the week to defy gravity. The company behind the Keurig single-cup brewer is simply marching to the beat of its own drummer after agreeing to be acquired by privately held JAB Holding in a $13.9 billion transaction last month. The deal will cash out investors at $92 a share, and with the deal expected to close no later this quarter trading will simply keep inching its way to the $92 finish line.
That steady path to the end gave the stock a pop at the time -- it was a 78% premium when the deal was announced -- but it's also been a cushion. The S&P 500 has taken an 8.1% hit since the morning that Keurig Green Mountain's exit strategy was unveiled. That makes the generous premium being paid for the stock even more generous given the market climate.
Any deal can always get unhinged before it's completed, and this buyout isn't any different. Someone can step up with a higher offer, possibly sending the stock north of $92 a share. That's not likely to happen at this point. Coca-Cola (NYSE: KO) was Keurig Green Mountain's best bet. It had already invested roughly $2 billion for a 16% minority stake in Keurig Green Mountain. Coca-Cola not only passed on the chance to make a play for owning all of the company, it agreed to sell its shares to JAB Holding in the transaction. With Keurig's carbonated beverage maker off to a rough start, it's easy to see why Coca-Cola didn't want to throw another $12 billion at Keurig Green Mountain. With Keurig Green Mountain's flagship brewer business declining, it's hard to see someone else stepping up to the plate.
The other way for the buyout to get derailed is if JAB Holding has cold feet, swallowing deal termination fees in the process. This is more likely than a potential bidder at this point, but neither scenario is likely. This leaves Keurig Green Mountain on a course of steady upticks between now and when the deal closes no later than March. With Wall Street giving other investors fits in recent weeks it's not a bad place to be sitting.
Rick Munarriz owns shares of Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $43 calls on Coca-Cola, and short January 2016 $37 puts on Coca-Cola. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.