Monday, November 23, 2009

Coffee Wars! (GMCR, DDRX, PEET)

Diedrich Coffee (DDRX) shares are up 27% today, as a bidding war has erupted for the company.

Earnings for this company are expected to nearly double in the year ended June 2011, jumping from an estimated $1.00 per share in June 2010 to $1.75.

Diedrich's rapid growth owes largely to the explosive popularity of k-cups, the single-brew coffee option. Diedrich is one of 4 licensed suppliers for Green Mountain's Keurig coffee maker, which is a huge hit in company kitchens in small and large businesses alike, not to mention in more and more individuals' homes.

Peet's coffee (PEET) saw a big lift in its shares following a great Q3, with shares up $4 on Ocotber 28th. They got another boost when Peet's boldly announced plans to purchase Diedrich for $213million or about $26 per share in early November.

In a release this morning, Diedrich included details about a competing offer from Green Mountain Coffee Roasters(GMCR), for $30 a share -->> an obviously richer price that the board was duty-bound to consider. Now Peet's had to decide how to respond, and they upped their offer to about $32 per share. I say "about," because it's a stock and cash deal that depends on the price of PEET shares.

PEET shares are trading down 10% today, as investors are clearly unnerved about not only the sheer size of this deal (Diedrich's market value is now 43% of Peet's own), but the quick 23% boost to the deal price.

Per the release, the PEET's offer comes via $19.80 in cash and .321 shares of PEET stock for each DDRX share -->> which equals $30.81 as of a couple minutes ago. The Green Mountain offer was for $30.00 per share in cash.

"After reviewing the offer from GMCR, the Board of Directors of Diedrich Coffee had determined that it constituted a "Superior Proposal" to the terms of the existing merger agreement between Peet's and Diedrich Coffee. As required under the terms of the existing merger agreement with Peet's, on November 20, 2009, Diedrich Coffee transmitted to Peet's notice of the Board's determination. Under the terms of the Peet's merger agreement, Peet's has until 5:00 p.m. Pacific Time on Friday, November 27, 2009 to negotiate with Diedrich Coffee to amend the current merger agreement in a manner that the Diedrich Coffee Board determines is at least as favorable to Diedrich Coffee's stockholders as the proposal made by GMCR. As part of those negotiations, Peet's has submitted the revised offer described above to Diedrich Coffee. In light of the different forms of consideration in the Peet's proposal and the GMCR proposal, Diedrich Coffee's Board is analyzing the two proposals to determine whether the GMCR proposal continues to be a Superior Proposal to the terms of the Peet's merger agreement and the exchange offer contemplated thereby as amended by the proposal received from Peet's. Diedrich Coffee intends to make an announcement promptly after a determination is reached by the Board of Directors."

The fit probably make more sense for Green Mountain, as they're the purveyors of the Keurig brewer, the hit product at the center of this debate anyway. A peek below shows that Diedrich might still be the bargain of the bunch, with the lowest PE and highest Free Cash Flow Yield, despite having the highest growth ahead of it. DDRX shares are trading at the $33 level, as the market expects this drama to continue to unfold.

Copyright 2009 AlphaNinja


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