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Move over 3G Capital and Warren Buffett.
There’s a new company that is becoming a household name in the global investment community. That name is JAB Holding Co., which is the investment vehicle for Germany’s Reimann family. The Reimanns are one of Germany’s wealthiest families.
JAB Holding may have first caught the attention of many U.S. investors a few weeks ago when it agreed to buy Keurig Green Mountain (NASDAQ: GMCR) for $13.9 billion – a 78% premium to Keurig’s market cap at the time.
But JAB has been on the march for several years now and has been very aggressively buying up food, retail and consumer products companies.
It owns a 10.7% stake in consumer products company Reckitt Benckiser (OTC: RBGLY). JAB also has control of luxury brands Bally, Jimmy Choo and Belstaff. Additionally, the company maintains majority control of cosmetics maker Coty Inc. (NYSE: COTY).
But its real focus is on coffee, which now accounts for 68% of the company’s assets. JAB spent $30 billion in the past three years alone on coffee.
In addition to Keurig, it owns a majority stake in U.S. chains Peet’s Coffee & Tea, Caribou Coffee and Einstein Bros. Bagels. JAB also recently purchased upscale coffee brands Intelligentsia Coffee and Stumptown Coffee Roasters. Stumptown is “hot” with its line of cold-brew coffees.
And back in 2014, JAB merged its coffee assets (contained in DE Master Blends 1753) with those of Mondelez International (NASDAQ: MDLZ), forming Jacobs Douwe Egberts. JAB spent $9.8 billion in taking over DE Master Blends.
JAB’s Goal
JAB Holding’s goal is simple and direct. Its aim is to become the Anheuser-Busch InBev (NYSE: BUD) of the coffee world. It’s quite a goal in the $80 billion global coffee market.
This really should not come as a surprise to anyone. The company’s CEO, Olivier Goudet, is also chairman of AB InBev. He and two other key executives at JAB – Peter Harf and Bart Becht – have a well-established reputation for transforming underperforming businesses.
Sounds a little like 3G Capital, right? Recall that 3G’s modus operandi is to buy out struggling companies and implement aggressive cost-cutting measures, as we saw with the Kraft Heinz (NASDAQ: KHC) merger earlier this year.
But there are two companies that stand in the way of JAB’s ultimate goal: Nestle SA (OTC: NSRGY) and Starbucks (NASDAQ: SBUX). And JAB Holding is taking direct aim at both.
Battle Lines Drawn
The reasoning behind the Keurig purchase, despite the high premium paid, is simple. Specialty coffee, including coffee made from pods and artisanal brews, now accounts for more than half of all coffee consumed in the U.S.
Adding Keurig to its specialty coffee chains here in the U.S. gives JAB added muscle. And Keurig will now be able sell pods of popular products like Stumptown.
With its goal to become the global king of coffee, I expect JAB will bring the fight right to Nestle. Keurig’s brewers will now be sold in Europe, where Nestle’s Nespresso machines now dominate.
The deal also closes the gap on Nestle in the packaged coffee space. Globally, Nestle’s percentage in that space in somewhere in the mid-20s. Now JAB sits with a percentage in the mid-to-upper teens.
And despite the arrangement between Keurig and Starbucks – which I expect to end – JAB is going after Starbucks too. Already, it has strengthened Peet’s by adding other coffeehouse chains to its portfolio.
But the real fireworks are yet to come.
As Anheuser-Busch did, I expect JAB to continue on its shopping spree and go after bigger game here in the U.S.
Do not be surprised if, in 2016, JAB makes a buyout offer for Dunkin’ Brands (NASDAQ: DNKN). Remember how 3G Capital’s Burger King bought out Tim Horton’s.
JAB Holding also needs more international expansion. Perhaps a large coffee chain like the U.K.’s Costa Coffee may be in its sights. Costa is the world’s second largest coffee chain, behind only Starbucks. It operates in 30 countries and is owned by Whitbread PLC (OTC: WTBCY).
One thing is for certain. Like 3G Capital, more takeovers are on the way from JAB Holding.
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