Green Mountain buys coffee-seller Van Houtte

U.S.-based coffee company Green Mountain Coffee Roasters took aim at the Canadian coffee market Tuesday with plans to spend $915 million to buy Quebec-based coffee services company Van Houtte.

Van Houtte, held by a U.S. private equity firm since 2007, produces specialty coffee, tea and other beverages in a variety of packaged forms. It is known for such brands as  K-Cup portion packs for the Keurig Single-Cup Brewing System sold under the Van Houtte, Bigelow and Wolfgang Puck K-Cup brands.

The Montreal-based company also operates Selena Coffee, Red Carpet and Filterfresh (USA) brands, through 78 corporate outlets and franchises, serving more than two million cups of coffee each day across North America.

"What we are attempting to do here over time is really build out a North American infrastructure and to support all of our customers both in the home side of the business, through retailers, and the grocery or office coffee customers," Green Mountain chief executive Lawrence Blanford said Tuesday.

The Van Houtte acquisition also strengthens Green Mountain's foothold in Canada, since it has already has a Timothy's World Coffee factory in Toronto, Blanford said on a conference call with analysts.

"We're off to a great position in the Canadian market," he added.

Blanford said Green Mountain's interest in Van Houtte is in its brand and the opportunity to expand its Keurig single-serving system holdings.

"Our primary interest certainly was the brands, the manufacturing operations in Montreal and obviously their expertise and knowledge in producing and marketing the Keurig K-Cup portion packs."

Green Mountain said the purchase, which will be funded with a combination of cash on hand and debt financing, will be neutral to slightly dilutive in its first year. It is expected to be beneficial to the company's results after that.

Divestiture possible

U.S.-based Stifel Nicolaus analysts said the K-Cup single coffee serving system is central to the deal.

"The acquisition of Van Houtte, the last independent K-Cup royalty partner, allows Green Mountain to maintain control over the market for K-Cups and is consistent with recent deals for Timothy's and Diedrich, in our view," lead analyst Mark Astrakan wrote in a research note.

"Assuming the successful acquisition of Van Houtte, we estimate Green Mountain would control approximately 95 per cent of system-wide K-Cups," he said.

Blanford said the Van Houtte team will continue with its current Quebec-based leadership.

"We share with our new owner the same culture of quality on which the Van Houtte reputation has been built," Van Houtte president and CEO Gerard Geoffrion said in a statement.

"With this new partnership, the company's leaders will to continue to reinforce the presence of the Van Houtte brand in its target marketplaces."

However, Green Mountain said it would review Van Houtte's Filterfresh U.S. Coffee Service business and contemplate the brand, given its existing network of distributors already in place in the U.S. It said the money from the divestiture would be used to pay down debt.

The deal is the latest in a series of acquisitions for Green Mountain, which completed its $300-million takeover of Diedrich Coffee Inc. in May. Diedrich was also a roaster licensed to produce K-Cups, which fit into the Keurig system.