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Caribou Coffee Company, Inc. (CBOU) Message Board

  • misskellyfitz misskellyfitz Sep 8, 2012 8:44 PM Flag

    Who's Next After Peet's?

    They are the new cousins of Peet's Coffee (NASDAQ: PEET). Joh. A. Benckiser, owner of such companies as Reckitt Benckiser (go around your house looking at the back of your household items and guaranteed you will find one of their products), Coty, Inc., and Labelux, paid $973.9 million, or 29% above July 20 closing, to take the Emeryville, Calif.-based coffee and tea company private.

    Within a few days of the announcement, though, the deal was the target of a smattering of investigations alleging management could have gotten better than $73.50 a share. As of July 25, the market thinks $75.00 is a more reasonable price. Whether or not there is any heft to these charges is yet to be found, but this excellent article over at Investopedia does a great, although pretty technical, job of explaining why the deal as is will most likely be final.

    Assuming the deal does actually go through, what is a consumer products company doing buying a coffee chain? In Q1 '12, Starbucks (NASDAQ: SBUX) (they release Q2 on July 26) announced global comparable stores had sales growth of 9%. Their consumer packaged goods business (CPG) grew by 72%. Margins are better too in CPG, though greatly affected by the commodity cost of coffee. The Americas physical store segment in Q1 saw operating margins of 21.8% vs. global CPG of 23.7%. It could be that Benckiser views Peet's as a consumer goods company, given that 58.2% of their revenue comes from whole bean coffee sales. So will they continue to try and compete with Starbucks and operate their retail business? The terms of the deal stipulate that Peet's will continue to be controlled by their current team, but it would be unlikely that Benckiser wouldn't try to absorb the brand in such a way that they can take advantage of their specialties.

    Naturally after a large acquisition there is chatter of more to come. A prescient 24/7 Wall Street article discussed this very trend. So who's next? Coffee Holding Co. (NASDAQ: JVA) is a straight coffee roasting play, but they don't have the hipster cache of Peet's and "the original Starbucks" image so beloved by the Peetniks. Dunkin Donuts (NASDAQ: DNKN) has the name and popularity but they just license their name to J.M. Smucker, the manufacturer and distributor. Einstein Bagels does have great coffee but no consumer goods presence.

    This leaves us with the most popular contender at the moment: Caribou (NASDAQ: CBOU). With only 29% of sales coming from consumer goods, they look more like a full-fledged coffee chain than Peet's, but if Peet's is the model buyers are looking for Caribou is the closest play out there.

    Sentiment: Strong Buy