There's something peculiar happening with shares of Keurig Green Mountain (NASDAQ:GMCR.DL). The stock has closed lower for five consecutive trading days.
Stocks go on losing streaks. That's not a newsworthy development in and of itself. However, for the company behind the namesake single-cup coffee brewer that dominates its niche and the K-Cup portion packs that fuel the beverages, the slide is noteworthy.
Keurig Green Mountain agreed to be acquired by privately held JAB Holding in a $13.9 billion transaction last month. Coca-Cola (NYSE:KO) -- the world's leading beverage giant, which invested roughly $2 billion for a 16% stake in Keurig Green Mountain -- signed off on the deal. Coca-Cola agreed to tender its shares. When the deal was announced nearly seven weeks ago, it was expected to close during the first quarter of this year.
In short, the stock should be on a gradual ascent to the $92 a share that those still holding the stock by March -- or whenever the deal closes -- will be receiving. There will naturally be downticks along the way, but five days in a row of declines could, and perhaps should, be making investors curious, if not nervous.
This is an all-cash deal with a privately held company, so it's not as if Keurig Green Mountain's stock should fluctuate based on the trading patterns of the acquirer. What's going on here? Let's explore the possibilities. One or none of them may be happening.
- There are fears that JAB Holding will pull out of the deal.
- The market's concerned that the closing date may bleed into the second quarter.
- Investors are merely adjusting the risk-reward scenario of holding on to the close.
The first point is naturally the most disconcerting. JAB Holding agreed to pay a 77% premium to where Keurig Green Mountain shares were at the time. If it walks away, it wouldn't be a shock to see the stock crash. Keurig Green Mountain would collect a termination fee, but it's not as if another buyout offer would be waiting in the wings. Coca-Cola -- the most obvious fallback suitor -- didn't have a problem agreeing to unload its position at $92 a share.
The fundamentals haven't necessarily improved in the past seven weeks. Keurig Kold still isn't selling, and its flagship brewer and K-Cups business have been declining in recent quarters. However, if the deal was coming undone, one would think that the stock would be taking a bigger hit than just the five consecutive nibbles we've seen.
The second scenario -- rumblings that the deal won't close on time -- makes a bit more sense. Keurig Green Mountain was trading a 2.1% gain away from $92 five trading days ago, and now investors would be receiving a 3.2% gain. If complications have come up to push the completion of the acquisition into April or May, it makes sense that the discount would widen. If investors are going to have to spend a few more weeks or months in the waiting room, they're going to expect more in compensation.
However, it's the third possibility -- the market's redefining how much it's willing to accept to tie down its money for a couple of months -- that's the more likely scenario. Mr. Market's been brutal in recent weeks. The S&P 500 has plunged 9% since the acquisition was announced in early December. However, with the market finally showing signs of life -- it's been up in back-to-back days -- it's easy to see why investors assuming that tying down an investment in Keurig Green Mountain for a couple of months is worth more than 2.1% given the opportunities in the general market for a recovery.
It's not fun to see a seemingly stable investment -- one that held up in positive territory during the sharp market correction -- move lower over the past week, but it's too soon to panic. Keep an eye on the price action, but don't assume the worst until it's more obvious than speculative.