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Keurig Green Mountain, Inc. Message Board

  • manic_medicine manic_medicine Dec 18, 2010 12:09 PM Flag

    Van Houtte - THINK it over

    Van Houtte was publicly traded until 2007 when private investment firm Littlejohn paid a premium to buyout Van Houtte shareholders and take the company private. Why was Littlejohn willing to pay $600 million (Canadian) for this company in 2007? Because they figured they could clean up company operations, make the numbers look better, put on a fresh coat of paint, and sell the company for an even higher premium in a few years. And they did. $915 million (Canadian) paid up by GMCR in 2010.

    Over the past three years Litteljohn has owned an operated Van Houtte. They've gotten to know all the hidden positives and negatives, and worked to ensure that the positives are visible to potential buyers. Littlejohn also knows whether business is expected to grow rapidly, whether it would be wiser to hold on to Van Houtte and sell it for far more money in a few more years. But no, Littlejohn decided that right now was the time to sell Van Houtte. The future can't be all blue skies.

    GMCR estimates that the interest payments on the loan used to buy Van Houtte will be larger than the profits generated by Van Houtte, resulting in a net reduction in GMCR shareholder EPS. This underscores what a great price Littlejohn was able to get for Van Houtte. I know several of them are celebrating the Van Houtte sale tonight with very expensive champagne. How should GMCR's shareholder be feeling?

    While bagholders blinded by their own delusions will blather on about how much money GMCR is going to make from this acquisition, reality checks show rational folks that GMCR management openly predicted the acqusition will REDUCE earnings.

    I suspect the real reason for the acquisiton is to divert attention from the fact the rapid k-cup sales growth is over. Management already reduced their guidance and I suspect they'll do it again in 2011. An EPS-reducing acquisition keeps the illusion of growth alive because it increases revenues. EPS growth will come to a halt and then turn negative, but revenue growth will continue. It gives the delusional bagholders just enough hope to keep supporting the share price.

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    • Thanks for a very negative analysis of this GMCR acquisition. I wonder why you expect readers to take you seriously. Obviously you don't own shares and may even be a short. The management will not be as dumb as you hope they are.

    • You clearly didn't think about it yourself.

      GMCR acquisition slide show page 5: Van Houtte Sales $445MM and EBITDA of $92MM, higher ebitda margin than GMCR

      Financing costs likely $55MM or lower as debt is paid down.

      So EBITDA minus 55MM, subtract Depreciation of perhaps 2% of sales for= 92 -10 (D&A) and 55 interest= EBIT of 27MM in year one.

      Throw in some growth of K cups (likely growing at 50% in canada , some cost synegies over time, pay off the loan... It will be nicely accretive like all the other deals

      And, with all the licensces back in house, GMCR is less risky of an acquisition by a major global multi national

      GMCR just de risked itsself to a buyer. an outside player could have bought Van Houtte for a kcup licesnse. GMCR is less risky and a better take out candidate.

      sure Little John pops some cocktails...they got off a good deal and get bonsuses just in time for the holidays. Just because they are happy doesn't mean they are happy at the expense of us or GMCr mgmt. Little john got bailed out with k cup growth that likely never say coming a few years ago...a massive lucky windfall to them...VCs no skill, just got lucky, I'd be getting drunk too.

      run the numbers, I did, you didn't. You likely missing the big picture like most short timers on this board or shorts that still don't get it.

 
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