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D.E Master Blenders and Mondelez Blend Coffee Businesses

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Mondelez completes spin-off of coffee business

On July 2, Mondelez International (MDLZ) and D.E Master Blenders 1753 announced the completion of a joint venture that combines their coffee businesses. The Netherlands-based joint venture called Jacobs Douwe Egberts will be a leading pure-play coffee company with more than 5 billion euros in revenue. The joint venture includes Mondelez’s coffee portfolio in France except the Carte Noire brand.

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Terms of the transaction

The spin-off of Mondelez’s coffee business fetched the company 3.8 billion euros. As part of the transaction, Mondelez now owns a 44% interest in Jacobs Douwe Egberts. D.E Master Blenders’ parent company, Acorn Holdings B.V. (or AHBV), owns a 56% share in the new joint venture. JAB Holding Company, a privately held group, owns AHBV in partnership with other entities.

Mondelez plans to use the proceeds from the spin-off to buy back shares and reduce its debt levels.

Market reaction

On May 7, 2014, the day Mondelez initially announced the deal, Mondelez shares rose 8.2%. As of July 13, 2015, the company’s share price has risen 9.2% since the initial announcement of the joint venture.

Mondelez makes up about 3.6% of the portfolio holdings of the Consumer Staples Select Sector SPDR Fund (XLP) and 0.4% of the iShares Core S&P 500 ETF (IVV).

Deal consolidates key brands

The joint venture brings some powerful coffee brands under one roof. This includes Mondelez coffee brands such as Jacobs, Kenco, Millicano, Gevalia, and Tassimo. It also includes D.E Master Blenders brands Douwe Egberts, Senseo, and Pilão.

By combining these key brands, D.E Master Blenders and Mondelez have created a larger coffee player that will put up a tough fight with market leader Nestlé (NSRGY) (NESN.VX). Nestlé held a 22.7% market share of the global coffee industry in 2013, according to Euromonitor International. Keurig Green Mountain (GMCR), which has a strong presence in the coffee pods and brewers market, held a 3.4% market share globally.

Part 3 of this series talks more about why Mondelez sold its profitable coffee business.

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