M&A

23 November, 2009

UPDATE 2-Peet's ups Diedrich bid to ward off Green Mountain

* Peet's raises Diedrich bid following rival bid * Green Mountain confirms $30/shr cash offer for Diedrich * Diedrich shares jump 28 pct * Peet's down 10 percent (Recasts; adds analyst comments, updates share movement)

By Viraj Nair

BANGALORE, Nov 23 (Reuters) - Peet's Coffee & Tea Inc (PEET.O) raised its cash-and-stock offer to buy Diedrich Coffee Inc (DDRX.O), but with its shares trading down, the proposed deal offered little upside to a competing all-cash bid from Green Mountain Coffee Roasters Inc (GMCR.O).

Gourmet coffee chain Peet's revised its offer to $32 a share, or $261 million, based on Friday's closing, after Diedrich informed the company that it considered a $30-per-share Green Mountain bid superior to a previous deal it signed with Peet's. [ID:nWNAB8886]

Earlier this month, Peet's had agreed to buy Diedrich for $26 per share, in a bid to cash in on Diedrich's status as a licensee of Green Mountain's fast-growing single-cup coffee brewing systems. [ID:nBNG501136]

"There is increased risk that Diedrich might look at (Green Mountain's) all cash deal as more substantial than taking on Peet's shares," Oppenheimer & Co analyst Matthew DiFrisco said.

With Peet's stock trading down, the deal values are getting closer and closer and it's now up to Diedrich's shareholders whether they'd like Green Mountain's cash or Peet's stock, DiFrisco said.

Peet's offer of $19.80 in cash and 0.321 of its common stock was worth $32 on Friday. However, its shares slid 10 percent to $33.98 in afternoon trade on Nasdaq.

At those levels, the offer is worth about $30.71 per Diedrich share.

"Peet's does have a sense of urgency to enter the fast-growing single cup market, and Diedrich probably is its only reasonable opportunity," Anton Brenner of Roth Capital Partners said.

For Peet's Diedrich's attraction would be a strategic business alliance to gain market share in grocery and at home consumption, which represents about 30 percent of its business, Oppenheimer's DiFrisco said.

Diedrich makes and sells K-Cup refills for Green Mountain Coffee's single-cup Keurig brewer system.

"Green Mountain certainly sees the amount of growth that's already taken place with the Diedrich brand, I think they want to bring them in house," DiFrisco said, adding "if they don't get it they would look to another existing brand to grow on the West coast."

Earlier in the month, Green Mountain acquired the wholesale business of Canadian licensee Timothy's Coffees from an affiliate of private equity firm Sun Capital Partners for $157 million in cash. [ID:nBNG118327]

Green Mountain said it will finance the Diedrich bid through cash on hand and its existing credit facilities.

Peet's expects to finance the cash portion of its deal through a combination of cash on hand at both companies and $140 million in committed debt financing.

"(Peet's) is taking on more liabilities and debt by doing this acquisition and taking on more of a financial burden, so that certainly changes the value of what you would be buying if you were a Peet's shareholder today," DiFrisco said.

With Diedrich shares trading up 27 percent at $33.04, investors seem to expect further bids.

"We believe that both Peet's and Green Mountain are capable of raising their offers further," Roth's Brenner said. (Reporting by Viraj Nair in Bangalore; Editing by Anne Pallivathuckal, Anthony Kurian) ((viraj.nair@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: viraj.nair.reuters.com@reuters.net))

Source: http://www.reuters.com