Owner of Peet's to buy Keurig for almost $14B

http://www.latimes.com/business/la-fi-keurig-sale-20151207-story.html

by mdesq • 11 years ago

60 84 11 years ago

jMyles• 11 years ago

The next time somebody tells you there's no startup capitalization bubble, point them to this frothy cup of craziness.

edit: Hmm - downvotes. So I guess people genuinely think that this (pretty shitty) company is worth $14b?

For reference, Mariott International, which just opened its 4,000th hotel, has a market cap of around $18b. In January of this year, freaking Nintendo had a market cap of only $12b (though, for reasons that are debated, it is now nearly double that).

There's no way on earth that this company is in the same realm as Mariott or Nintendo. Come on now.

mikeash• 11 years ago

What's crazy about it? Given the popularity of Keurig right now, this is practically like buying a printing press from the Bureau of Engraving and Printing.

mseebach• 11 years ago

It's important to keep in mind that Marriott International (with a few exceptions) doesn't actually own the hotel properties themselves -- they're franchises.

bdcravens4• 11 years ago

I don't think Keurig qualifies as a startup. Their k-cups have been around since 1998; the company since 1992.

Coffee is a consumed by many daily; Keurig is undoubtedly the most popular single-serve brew solution. It's likely that more drink a cup of coffee from a Keurig machine than wake up in a Marriot bed or turn on a Nintendo. Their users are always buying consumables; hospitality and entertainment media is typically purchased far, far less frequently. (and good or bad, Keurig's DRM is designed to help them squeeze out more licensing)

Marriot is getting squeezed by the many hospitality options and AirBnB; Nintendo is the #3 console and is getting squeeze by mobile gaming. Keurig however, is by far the most available option for single-serve in most grocery stores and in places where you buy the machines.

So yeah, in terms of many business metrics (market share, consumer loyalty and access, etc), they're not in the same realm as Marriot or Nintendo.

cm20124• 11 years ago

Mariott had $214 million net income in 2014. Keurig had $500 million.

EDIT: Mariott actually had 753m net income in 2014.

adventured• 11 years ago

I happen to think that Keurig is worth acquiring at 28 times their trailing four quarter earnings (it might be a bit high, but that's the price of acquiring). However, you're partially mistaken on those numbers.

Marriott had $753m in net income in 2014. You're referring to just one quarter. They've done $854m in net income the last four quarters (20.8 pe ratio or so).

mwfunk• 11 years ago

What you said makes sense if a company's stock price (and market cap) was correlated with the size or stability or profitability of the company. That's usually not the case though. People buy and sell stocks based on their predictions about other people buying and selling the same stocks, which itself is only indirectly based on a company's performance.

You are correct that in an ideal world, $14b sounds like a lot for Keurig, but that's pretty mild compared to other valuations (in the tech industry in particular, and among startups in particular) that we all read about every day. Apple reports record profits? The stock tanks. Amazon loses money? Hey everybody, let's double down on Amazon. Facebook's market cap is over $300b right now. $300b for Facebook, let that sink in. Twitter's market cap is currently $17b in spite of having no path to long-term stability or profitability in sight.

The one thing a company can do to improve its stock price seems to be to show growth. If there's growth, your stock is likely to go up. If there's not growth, even if you remain insanely successful and profitable, your stock doesn't stay the same- it's likely going to go down (MS in the aughts being a prime example). Investors seem to value growth (and fear the lack of growth) far more than they care about the fundamentals of the companies they invest in, at least in the tech industry.

Every market has natural forces acting on it that push it towards efficiency and rationality, but most people learn about those concepts and stop there. IMO, understanding a market means understanding why a given market isn't 100% efficient or rational in spite of those forces, and in the case of the stock market I fear that it's mostly driven by the Greater Fool Theory: https://en.wikipedia.org/wiki/Greater_fool_theory

coldcode• 11 years ago

Building terrible DRM technology does seem to pay off in some cases.

hyperliner2• 11 years ago

No different than the Starbucks coffee many of us have in our hands as we read your comment: terribly killing small coffee producers in Third World countries does seem to pay off.

Relys• 11 years ago

Starbucks is leveraging it's economy of scale to out price it's competitors in a free market. Keurig is using it's position in the industry to enforce DRM on it's hardware to stifle free market competition and exert it's power over the customer. Now, you may agree or disagree with Starbucks business practices or Keurigs DRM. However, I stand to argue that a direct comparison between the two is unfair.

chollida12• 11 years ago

A few interesting things about this deal.

Keurig is getting a 78% premium over their Friday share price. That's a huge premium. C

The company had a lot of short interest( about 8% which puts it above 89% of the companies on the S&P), so today alot of funds(Einorn is particularly upset) are receiving huge margin calls.

When you claim to not like a stock and someone else asks why don't you short the stock if you don't like it, this is what you point to. Just because you don't like a stock doesn't mean someone else with deep pockets won't love it.

The CEO of Keurig just sold a bunch of shares last week to pay the taxes on his options. Not being able to wait a week cost him close to $1,000,000.

see: http://kiddynamitesworld.com/green-mountain-coffee-the-most-...

jacquesm• 11 years ago

The CEO of Keurig just sold a bunch of shares last week to pay the taxes on his options. Not being able to wait a week cost him close to $1,000,000.

I highly doubt he's crying.

will_pseudonym4• 11 years ago

You should look into put options. They're how you short a stock without a massive downside. If the stock goes down you win, if the stock goes up you lose nothing, and all it costs is a small up front premium.

sk5t• 11 years ago

To say you "lose nothing" seems a strange way to describe an option you have to pay for and which has no value without clearing the contract cost.

datapolitical• 11 years ago

If he sold immediately after the announcement he'd be in big trouble. Likely there's a lockup for a while and he wanted to sell before the end of the year.

shostack2• 11 years ago

Looks like the investors are trying to cover all the bases on their coffee portfolio...

From the article:

"Peet’s recently acquired “super-premium” coffee companies Stumptown Coffee Roasters and Intelligentsia Coffee."
"Keurig said the acquisition was done in partnership with “strategic minority investors” that are already shareholders in Netherlands-based global coffee and tea company Jacobs Douwe Egberts B.V., including Mondelez International and entities affiliated with investment firm BDT Capital Partners. Jacobs Douwe Egberts owns Maxwell House and Keurig rival Tassimo, among other coffee and tea brands."

pasbesoin5• 11 years ago

Per my other comment on this thread, all I can say in response to this is, "Argh!"

Big outfits continue to acquire and... "beat down" the better shops, in our area. Make money, I guess -- but the product invariably seems to suffer.

RogtamBar2• 11 years ago

Make money, I guess -- but the product invariably seems to suffer.

They have to make up the acquisition costs. Why do people sell though?

shiven• 11 years ago

I mourn for Intelligentsia :-(

Best.Damn.Coffee.This.Side.Of.The.Atlantic.Period.

Srsly! Better coffee than that is only found in mainland E.U.

schwarzrules• 11 years ago

I hope this isn't an acquihire. Would be a shame if they shut down the k-cup business.

jhall1468• 11 years ago

No company is going to spend $14B to acquire talent.

tcfunk• 11 years ago

Not sure if sarcasm, but shutting down the k-cup business would be a great step toward a better world.

pasbesoin5• 11 years ago

Peet's bought up a bunch of Caribou locations in our area. My father has been holding his breath, waiting to perhaps finally be able to get a decent espresso (or coffee).

Instead, the location sat empty for more than a year. Now, the wraps just came off -- and it's a Dunkin Donuts.

So... Not too fond of Peet's, now. And acquiring Keurig doesn't help.

It's looking like Peet's is primarily a money game, now. Fortunately, a good local independent has finally opened -- near to me, but something of a drive for Dad.

darkstar999• 11 years ago

It's looking like Peet's is primarily a money game, now.

And they weren't before?

pasbesoin5• 11 years ago

There was a time when Starbucks in our area had pretty much gone to the dogs (years earlier, some of their shops were actually run pretty well and could serve a good espresso, particularly when they still had the manual bars). There were a couple of Peet's, significantly farther away but still within occasional range, and they were then significantly better than Starbucks at that time.

At that time, Peet's seemed to be proceeding more slowly and setting a certain quality level ahead of rampant expansion.

If they are moving into Keurig / Green Mountain, and selling properties to DD, then they are just another corporate customer.

Mars (yeah, that Mars) came in and bought another local outfit in a nearby city. Fortunately, the deal I guess left the actual shops out of it, or they reverted a year or two later to independent ownership. They rebranded and are still / once again busy serving up a good product to loyal customers. The original brand name appears now to have moved into a stable of similar names and products that I expect to see floating around corporate settings -- hollow, genericized echos of what they once represented.

I suppose all this is getting more than a bit OT for HN. But I'm older, "lives on coffee" kind of guy. And I've found that big and/or public money just does not produce an exceptional product, in that market.

A bit frustrating, when those same forces force out the local operators. Fortunately, the one that has opened near me is in a town that can afford it and is surprising me with more of a population that is embracing the shop than I would have expected to be present.

And yeah, there is "make it yourself." But there is also something social -- and simply "getting out of the house" -- to heading over to the local joint and maybe striking up a conversation.

artursapek3• 11 years ago

What is Caribou? If they were as bad as that, why are you surprised Peet's would shut them down?

If you want good espresso, make it at home. The equipment pays for itself after a few years of not driving out to get espresso on a regular basis.

bdcravens4• 11 years ago

Just a smaller coffee company. Never been in a location, but I have had many of their k-cups.

justin66• 11 years ago

The parent of Peet's (and Caribou) closed all our local Caribou a few years ago and replaced them with a much smaller number of Peet's. It was a downgrade (the nationwide Peet's is nothing at all like the great ones I remember from the Bay Area) and a year later, they closed those Peet's and abandoned the region entirely. The Peet's they closed did a decent business (as did Caribou) so it was all just mysterious.

It sounds like they just skipped a step with you guys. Efficient!

pasbesoin5• 11 years ago

Probably the result of hiring some consultants. ;-)

joezydeco2• 11 years ago

We had half the Caribou stores in our area convert to Peet's, and the other half were shuttered. Then the Peet's that remained closed about a year later.

edgesrazor• 11 years ago

Peet's bought out our Caribou and took quite a while to remodel it before re-opening. It was open as a Peet's for maybe 6 months and it closed for good. I just don't understand how they came to that decision.

atourgates2• 11 years ago

I hope this encourages them to kill off the horribly conceived Keurig Kold project, or at least wait until it's ready for prime-time before releasing it.

Some highlights:

* A single-serve soda maker.

* The machine costs $369

* Each 6oz flavor pod costs between $1 and $1.50

* It takes 90-seconds to make a single 6oz drink

* It takes 2-hours to come on and cool down enough to be ready to make a drink.

Even without the cost of the machine itself, you're paying about $0.20/oz of soda (which people say tastes slightly worse than the canned variety), compared to $0.12/oz just buying it by the can. Add the nearly $400 purchase price, the fact that it'd take 6-minutes to "brew" 4-cups for, say, a family, and the gigantic machine on your kitchen counter, and it's hard to imagine why anyone would buy this thing.

Keurig's coffee machines make sense. But at some point during the $200M 6-year development cycle for the Kold, someone should have stepped back and said, "Wait, this is a horrible idea and we should stop."

EDIT: I should add that Coke has invested a total of $2.4 Billion in Keurig (specifically to support the Kold) thus far. They should be doing a dance in the street, since an acquisition is the only way I can imagine them getting that money back.

Johnny555• 11 years ago

When I read this, I thought you were mistaken on the cost of the pods, but sure enough, they cost from $1.00 to over $3.00 per pod (on Amazon).

I can buy Coke cans at Costco for around 35 cents/can or close to 3 cents an ounce. Why would Keurig think that I'd want to pay 5+ times more for the "convenience" of buying a big expensive machine to let me "make" coke at home!?

And those capsules look big (which is probably because there's so much sugar in soda, they can't make them tiny. Probably about 1/4 the size of a 8 ounce can of coke.

beau26• 11 years ago

The pods are awful. My friend, who buys lots of useless stuff, has described the Kold as "the most useless thing I've ever bought."

A mini-fridge + 20 cases of Coke is cheaper upfront and in the long run.

stevesearer• 11 years ago

If you have a soda fountain, you can buy a 5 gallon pod of Coke syrup for $81 which will make you 320 12-oz drinks: http://www.samsclub.com/sams/coca-cola-5-gallon-bag-in-box-f...

bdcravens4• 11 years ago

I suspect it's a licensing thing. The Soda Stream lets you make a liter of soda for about the price of a generic soda (when you factor in CO2 + syrup)

As for the size of the pod, a cap of syrup smaller than one 12 oz drink's pod can make that same liter (though the Kold doesn't have a CO2 cartridge, so I'm sure the tech transfers the fizziness to the pod somehow)

sliverstorm2• 11 years ago

Who knows, maybe Coca Cola is playing a long game, and hope to refine the technology enough that one day they can ship around only the dry ingredients, and save $$$ on shipping all the water in each can?

BHSPitMonkey• 11 years ago

Not to mention the aluminum cans are infinitely more recyclable than the used pods are.

AjithAntony• 11 years ago

And those capsules look big (which is probably because there's so much sugar in soda, they can't make them tiny. Probably about 1/4 the size of a 8 ounce can of coke.

Also "carbonation beads stored within the pod"

silentplummet• 11 years ago

A stain on the history of human civilization. A few men will become rich beyond imagination by a skillful appeal to base laziness and apathy. It's the renaissance of the disposable generation. Just toss the cup away. Toss the whole maker away when it breaks, too.

Make no attempt to contemplate where all of this trash ends up.

What's wrong with taking a few minutes to make the coffee and clean up after yourself? Did you know coffee grinds make a great nutritious supplement to household plants and gardens?

brandonmenc• 11 years ago

Toss the whole maker away when it breaks, too.

Just like a laptop.

Someone12343• 11 years ago

Indeed. Just like every electrical item. Integrated circuits aren't easy to repair, or cost effective for that matter.

I don't think Keurig machines are well made as an aside, so more of them get thrown away than there should be. But that's an issue with Keurig, I don't really expect your average consumer to be popping open electronics and repairing things (regardless of what the item is).

cm20124• 11 years ago

Eh - there is actually plenty of room for pretty much all the trash humanity could possibly create. A hole ten miles square and couple of hundred feet deep could hold all of the U.S.'s trash for the next 100 years (this is not a controversial statement). And recycling is energy inefficient for pretty much everything but aluminum and steel.

Keurig solved a huge problem in offices - how to always have coffee available when people en masse are pretty bad at refilling the coffee. No amount of hand wringing will make people better at things like refilling coffee.

dahart• 11 years ago

Like space, energy is also a non-argument, there's plenty of it.

The thing we don't have is infinite petroleum resources to make single use plastic cups. The other thing we don't need is unnecessary amounts of toxic production polluting the air, water, and land far and wide outside the hole in the ground where the waste goes.

JustSomeNobody2• 11 years ago

What was the problem? There were already machines that self filled with water. Just toss coffee in a filter and go!

I promise you, it's NOT that hard.

mason240• 11 years ago

I've read some convincing arguments where they calculated that keurigs are less wasteful than brewing because of the tiny amount of coffee in a pod, versus large scoop of grounds you are using in a coffee pot, which translates to huge resource savings in growing the beans.

aesthetics1• 11 years ago

I buy brands that make their pods biodegradable. This one specifically is cheap and doesn't harm the environment. I can throw these into my garden and they disappear pretty quickly: http://www.amazon.com/San-Francisco-Bay-OneCup-Coffees/dp/B0...

The problem with taking a few minutes is that some of us who drink coffee don't have a few minutes. Not a morning person - and that's why I drink it in the first place.

zeveb• 11 years ago

You know, I hate the waste of a Keurig, but it has advantages as well as costs. Remember how bad office coffee used to be? Over-cooked, lukewarm, foul? All that goes away with a K-cup machine. I despise the waste, but man is it a colossal improvement in quality.

RogtamBar2• 11 years ago

Did you know coffee grinds make a great nutritious supplement to household plants and gardens?

Nope. I don't drink coffee, as I dislike the taste. Chewing roasted coffee is more fun than drinking it.

smlacy• 11 years ago

Yuck. Keurig is a horrible company and this will stain Peet's reputation. Too bad.

JustSomeNobody2• 11 years ago

I hope Peet's doesn't get so big now that their coffee suffers. That would be a horrible shame.

arturadib• 11 years ago

Few know that Green Mountain Coffee (now Keurig Green Mountain) was started is still headquartered in Vermont. (GMC slowly acquired Keurig in the 90s, based in Massachusetts).

I have been living in VT for the last several years, and I'm pleasantly surprised by the sheer scale of unicorns this state has produced over the last 10 years: IDX (sold to GE Health for $1B+), Dealer.com (sold to Dealertrack for $1B+), and Keurig ($10B+).

Let this be an inspiration for entrepreneurs outside of Silicon Valley and other innovation hubs!

EvanKelly• 11 years ago

K-Cups are a really interesting product to me as someone who loves coffee.

We have almost every different way of making coffee at our office (normal machine, chemex, french press, aeropress, big machine that grinds beans fresh and makes cup in ~40 sec) and people still use the K-cup machine.

I know that most of those methods are a bit more time intensive and daunting, but we have a big machine that makes a cup from fresh beans with one button push. I've talked to my co-workers and a lot of them simply like the K-cup coffee better. To me, it's almost objectively worse coffee, but people still love it.

I'm not sure whether it's branding or just what they're used to, but if you give people the option of coffee from a pot or from a k-cup, it seems they'll almost invariably choose the k-cup.

atourgates2• 11 years ago

It blows my mind too.

I'm a coffee nerd, but not a snob. I can enjoy a cup of Starbucks, gas-station coffee, and even be fine with a cup of instant.

I would choose any of those over the best Keurig I've tried. To me, the taste goes far beyond "not good" into "awful" territory.

But like you say, people genuinely like it. We added one to the waiting room of my wife's medical office, and from her patient's reactions you'd think we were giving them world-class coffee for free. I wonder if Keurig coffee is one of those weird foods like cilantro where only some people can taste the "awful".

Owner of Peet's to buy Keurig for almost $14B

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