Caribou Coffee Company, Inc., one of Minnesota’s 60-largest public companies, said Monday that it has agreed to be taken private in a deal valued at $340 million.
The Brooklyn Center-based coffeehouse chain, which recently celebrated its 20th anniversary, said that it has signed a definitive merger agreement with the Joh. A. Benckiser Group (JAB), a German holding company, under which JAB will pay $16 per share in cash to acquire Caribou.
JAB in October bought a majority stake in California-based Peet’s Coffee & Tea, Inc., for about $1 billion. It also has a minority stake in D.E Master Blenders 1753 N.V., a coffee and tea company based in the Netherlands.
The acquisition, which Caribou said was approved by its board, represents a premium of about 30 percent over Caribou’s Friday closing price. Following the deal, Caribou said that it will continue to operate as an independent company with its own brand, management team, and growth strategy. It will also remain based in the Twin Cities.
“We anticipate the next chapter in Caribou’s journey will be filled with tremendous opportunities to grow this great brand, with new ownership,” Caribou President and CEO Michael Tattersfield said in a statement.
Under the terms of the deal, a JAB affiliate will “promptly” commence a tender offer to buy Caribou’s outstanding shares. Once the tender offer is completed, JAB will acquire all remaining shares not tendered in the offer through a second-step merger at the same price as the tender offer, Caribou said. The deal is subject to customary closing conditions, and it requires a majority of Caribou shareholders to agree to the deal. BDT Capital Partners, a Chicago-based merchant bank, is a minority investor in the deal, Caribou said.
“Caribou has a fantastic brand and unique culture, and fits perfectly with JAB’s investment philosophy of investing in premium and unique brands in attractive growth categories like coffee,” JAB Chairman Bart Becht said in a statement. “JAB is committed to investing in Caribou as a standalone business out of Minneapolis to ensure the company continues its current highly successful track record.”
As is not uncommon in major takeovers, there is one group contesting the planned acquisition. Tripp Levy, PLLC, a New York-based national securities law firm, said Monday that it is investigating the planned acquisition. The firm said that the investigation concerns whether Caribou’s directors have “engaged in self-dealing and have failed to act in the best interests of their respective shareholders in breach of fiduciary duties.”
The firm claims that at least eight independent Wall Street analysts agree that the “true takeover value of the company” is at least $20 per share. Additionally, Tripp Levy said it is believed that senior management and “certain directors” will join JAB in obtaining an equity interest in the company.
Matt Bendixen—a senior research analyst with Minneapolis-based Craig-Hallum Capital Group, LLC, and someone who closely follows Caribou—told Twin Cities Business on Monday that the company was a prime candidate for a buyout.
“The stock has been kind of undervalued for a while,” he said, adding that the company is “firing on all cylinders right now.”
“It doesn’t surprise me.”
Caribou has been “kind of a classic turnaround story” since Tattersfield joined the company in 2008 at a time when the company wasn’t profitable, Bendixen said. The company shuttered underperforming stores and began started growing same-store sales by launching new offerings like breakfast sandwiches, gourmet grilled cheese sandwiches, and a new drink platform that uses Guittard chocolate. More recently, it even started opening new stores.
But in the spring, Caribou’s stock began to slide—which Bendixen attributes to troubles with its single-serve coffee business. Caribou sells green coffee beans to Green Mountain Coffee Roasters, which roasts them to Caribou’s specifications and markets a Caribou-branded single-serve product for Keurig coffee machines. Caribou receives a royalty on those sales.
But green coffee bean shipments to Green Mountain have reportedly been down in recent months, and Bendixen said Caribou faced increasing competition and lost some of its market share when Starbucks formed a similar partnership with Green Mountain.
Although the single-serve business constitutes a relatively small portion of Caribou’s overall revenue, its decline worried investors, Bendixen said. Whereas Caribou’s stock was trading above $18 in March, it had fallen below $12 by May and never returned to previous levels.
Shares have been “very cheap” in light of the issues with Green Mountain, Bendixen said. That combined with Caribou’s continued growth made the company ripe for a buyout.
Shares of Caribou’s stock closed at $12.32 on Friday, although news of the buyout sent them up roughly 30 percent to $16 on Monday morning.
Local law firms working on the planned acquisition are Kaplan, Strangis and Kaplan, P.A., and Briggs and Morgan, Professional Association, both of which are based in Minneapolis.
Caribou, which was founded in 1992, bills itself as the second-largest company-owned premium coffeehouse operator in the United States. As of September 30, it had 610 coffeehouses, including 202 franchised locations, in 22 states, Washington, D.C., and 10 international markets.
In its most recent quarter, which ended September 30, Caribou reported revenue of $77.2 million, down 5.2 percent from $81.4 from the same period a year ago. Earnings totaled $1.7 million, down modestly from $1.8 million during the same period in 2011.