Time pressures Coca-Cola with the Keurig acquisition
March 11, 2015
In February 2014, Keurig Green Mountain Inc. announced an unexpected partnership with Coca-Cola, where the beverage giant acquired a 10% minority stake in Green Mountain. The deal was essentially a strategic agreement for bringing Keurig beverage system to consumers around the world, including „Keurig Cold“, which would compete in the cold beverage market.
In May 2014, the company announced that Coca-Cola had already made a move to increase its stake in Green Mountain shares by an additional 6%, bringing KO’s stake up to 16%. The increased stake in Green Mountain by Coca-Cola was accelerated through an advanced purchase agreement through Credit Suisse.
However, growing number of industry analysts have stated that Coca-Cola is spending too much on advertising and not diversifying enough through acquisitions. The Coke brand is known worldwide and advertising dollars spent over the years have not increased sales of their product, so it makes perfect sense to grow through acquisition. If Coca-Cola were to acquire Keurig in the near term, they would quickly develop a powerhouse for both hot and cold bewerages by using their international sales channels.
Coca-Cola has a good history of moving quickly to take over companies that it has developed a majority stake in over the years and since 1995 deal for root beer giant Barq’s, it has focused on buyouts outside of its carbonated beverage stronghold. Coca-Cola acquired Odwalla in 2001 to expand into fruit juices and smoothies. It was a big year in 2007 when it snapped up iced tea specialist Fuze and Glaceau, the company behind fortified water leader vitaminwater.
Simply partnering with companies does not mean any real growth for Coca-Cola and its shareholders are well aware of that. It is anticipated that the takeover bid would come rather sooner than later, as there is over a year passed since Coca-Cola announced a stake. Since Keurig is showing solid growth rate, continues to expand operations and increase its earnings power, time is working against Coca-Cola. It is clear that Green Mountain is moving forward for growth and waiting just means for Coca-Cola that the company comes with a higher price tag.