MONTREAL — Quebec-based coffee services company Van Houtte has been sold to Vermont’s Green Mountain Coffee Roasters Inc. for $915 million to strengthen the American-based coffee company’s position in Canada and the United States.
Tuesday’s deal involves two companies whose main business is selling Keurig single K-cup coffee, machines and services to homes and offices across North America. But while the friendly transaction continues the consolidation of North America’s coffee sector, it isn’t expected to affect the price of coffee or restrict choices for consumers.
At the retail end, there’s plenty of competition and prices are mostly determined by the wholesale price of coffee, inflation and other corporate cost pressures.
Van Houtte was sold to a U.S. private equity firm in 2007 and roasts and sells gourmet coffee for homes and offices and distributes it through direct-to-store delivery and coffee services networks in Canada and the United States.
The Montreal company operates Selena Coffee, Red Carpet and Filterfresh (USA) brands and runs about 70 stores in Quebec. It also sells coffee machines and services to about 60,000 offices and workplaces in the United States and Canada.
Green Mountain already has a presence in Canada after buying the the wholesale and roasting operations of Toronto-based Timothy’s Coffees of the World for $157 million late last year.
“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.
With Timothy’s in fold and now Van Houtte, “we’re off to a great position in the Canadian market,” Blanford added.
In addition to the Van Houtte name, the company also operates under the Brulerie St. Denis, Les Cafes Orient Express Coffee and Brulerie Mont Royal brands. Van Houtte is also a licencee of the Keurig single-cup coffee system that allows consumers to make one cup at a time.
Consumers shouldn’t notice the difference since the retail coffee market in Canada has many players, including Tim Hortons (TSX:THI) Starbucks Corp. (Nasdaq:SBUCKS), Second Cup Income Fund (TSX:SCU.UN), McDonald’s Corp. (NYSE:MCD) and other retailers.
Consumer products analyst Robert Cavallo said the transaction won’t really affect Second Cup, Tim Hortons or Country Style coffee competitors.
“It’s a really different market — I don’t personally think it would be a major impact to any of those three,” said Cavallo of Mackie Research Capital Corp. in Toronto.
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.”
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,” Astrakan said.
Cavallo said the Starbucks’ Via brand single-serve packages of coffee could potentially cut into Green Mountain’s K-Cup business.
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.”
Geoffrion is expected to remain with the company after the deal closes later this year.
Van Houtte is a formerly independent public Canadian company founded in 1919 as an importer of specialty coffees from Europe. The Van Houtte family carried on the business after the founder died in 1944. It took on management partners in 1980 before going public in 1987. In 2007, it announced it was seeking strategic alternatives and put itself up for sale.
It was bought by an affiliate of Littlejohn & Co. LLC, a private equity firm headquartered in Greenwich, Conn., for $615 million in 2007 and delisted from the Toronto Stock Exchange.
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), with about 1,500 employees, has been partnering with Van Houtte since 2001 and has been looking to get a better foothold in the Canadian market. The U.S. firm, which already operates under the Timothy’s banner in Canada, said it expects to divest Van Houtte’s U.S. coffee service business, known as Filterfresh, after the acquisition is completed.
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.
During the second quarter Green Mountain reported that it saw a major boost from sales of its Keurig brewing systems and K-Cup packs. The coffee company said it shipped 72 per cent more K-Cup packs in the second quarter than in the prior year and nearly doubled its shipments of Keurig brewing systems.
Shares of Green Mountain, based in Waterbury, Vt., slipped 43.3 cents to $34.81 in trading on the Nasdaq market.
On the TSX, Tim Hortons stock increased 31 cents to C$37.74, while Second Cup units increased six cents to C$7.56.
On the Nasdaq, Starbucks stock jumped four cents to US$26.79