Leading Dutch coffee supplier DE Master Blenders 1753 is linking up with US snacks giant Mondelez International to create a global coffee leader.
The Dutch company’s best-known coffee brand, Douwe Egberts, will team up with Mondelez’s Jacobs and Carte Noir brands in a new company to take on other giants in the coffee market like Nestle, the companies said on Wednesday.
Master Blenders will pay US$5 billion in cash to Mondelez for its coffee business, and give Mondelez a 49 percent stake in the new player.
The company, to be called Jacobs Douwe Egberts (JDE), will be based in the Netherlands and is expected have annual sales of more than US$7 billion.
This strategy will “create the world’s leading pure-play coffee company,” the two companies said in a statement.
The new company “will hold leading market positions in more than two dozen countries and will have a strong emerging-market presence, giving it significant revenue synergy opportunities,” the statement said.
The deal excludes Mondelez’s coffee business in France, which will be bought by Acorn Holdings, the owner of Master Blenders.
Mondelez is a leader in the snacks sector, with brands including Cadbury, LU and Nabisco biscuits, and coffee brands such as Gevalia and Tassimo.
The tie-up comes as the Deerfield, Illinois-based company looks to refocus strategy on its snacks business. Coffee accounts for 17 percent of Mondelez’s sales, which totaled US$35 billion last year.
Master Blenders has a portfolio of global coffee and tea brands, including Douwe Egberts, Senseo and Pickwick.
Tracing its origins back to 1753, the company emerged from the spin-off of US company Sara Lee’s international coffee and tea business, bought by a German investment group led by Joh. A. Benckiser in 2012 for nearly US$10 billion.
In the first quarter, Mondelez saw a 70 percent plunge in net profit from a year ago, due to lower coffee sales and weaker emerging markets.
Mondelez said its organic growth outlook for this year had slowed to 3 percent, and it was launching a US$3.5 billion cost-cutting restructuring program through 2018.
“We anticipate that the challenging environment in emerging markets will continue,” it said.
The new JDE will compete with beverage giant Nestle in the highly profitable coffee capsule market, said sector analyst Tom Muller of Theodoor Gilissen private bank.
“The coffee capsule market, especially in the United States and Europe, is a strong growth area,” Muller said.
“In order to be a world leader and compete against a coffee capsule market leader like Nestle, you need coffee volumes and marketing power. This I think is the idea behind this deal,” he said.
Muller said the deal could make JDE the world’s leader in the combined market for capsules and coffee beans.
The deal is expected to be completed in the course of next year, subject to regulatory approvals.
Mondelez CEO Irene Rosenfeld said her company, by retaining a stake in JDE, would “continue to benefit in the future growth of the coffee category.”
Master Blenders CEO Pierre Laubies said that JDE would “offer more people around the world more access to high-quality coffee” and would enable the company to seize significant growth opportunities.
Mondelez investors cheered the news, pushing shares up 8.2 percent to US$38.10 on the NASDAQ on Wednesday.
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