2nd UPDATE: Peet's Coffee In $1 Billion Takeover by Germany's JAB

--Private-investment group Joh. A. Benckiser agrees to acquire Peet's

--Deal takes it private following a sharp drop in share price

--Shares surge above deal's $73.50-per-share price

(Adds analysts' comments, updates share movement, in the second, seventh through 11th and 13th paragraphs.)

 
   By Joan E. Solsman 
 

Peet's Coffee & Tea Inc. (PEET) agreed to be taken private in a nearly $1 billion cash acquisition by German investment group Joh. A. Benckiser, news that jolted shares to their highest level in months.

Shares in the struggling coffee seller surged 29% to $73.57, their highest level since the stock started to tumble on a first-quarter profit miss at the beginning of May, exacerbated by high coffee costs and soft grocery volumes. In late March, shares had hit an all-time high of $77.60 only to fall to a nine-month low less than two weeks ago.

The movement also elevates the share price above the $73.50-a-share level of the Joh. A. Benckiser's deal, which indicates investors are speculating another suitor may enter the fray.

Under the deal, Peet's will continue to be operated by its current management and employees and will remain based in the San Francisco Bay area, with its home office in Emeryville, Calif., and its roast-to-order facility in Alameda, Calif. The deal is expected to close in about three months.

Peet's Chief Executive Patrick O'Dea said the company's commitment to high-quality coffees and teas will continue to be its guiding purpose. Chairman Jean-Michel Valette said JAB's interest reflected the power of Peet's brand.

"We are pleased that JAB recognizes this and that Peet's existing shareholders will be rewarded with significant value," Mr. Valette said in a release.

Peet's products sell at a premium to other brands, even Starbucks Corp. (SBUX). Analysts said its track record of preserving its premium branding within specialty coffee, which remains a growth category, puts Peet's in a desirable strategic position.

Wedbush Securities analyst Nick Setyan said Starbucks was a logical suspect for a potential third-party bidder. Besides having the financial heft to be relevant in a $1 billion deal, Starbucks has close roots to Peet's. It was the inspiration for Starbucks's founders, one of whom worked at the company to learn the business, and was a supplier to the nascent chain in its early years.

More recently, Starbuck's Chairman and Chief Executive Howard Schultz has referred to Peet's founder as a "spiritual godfather," Setyan said, adding that the market believes Starbucks has made quiet overtures to Peet's in the past.

The nearly $1 billion enterprise value of the JAB agreement could stoke a competing offer or shareholder objections if it is seen to underappreciate Peet's growth prospects, Baird Equity Research analyst David Tarantino said in a note. Peet's has more-favorable coffee costs on the horizon and the prospect of a single-cup offering launch, which means the company's earnings power may be undervalued in the deal, he said. Peet's could appeal also to Kraft Foods Inc. (KFT) as well as Starbucks, he added.

Peet's has been hindered by not participating in the fast-growing single-serve market, which is grabbing market share. In September, Green Mountain Coffee Roasters Inc. (GMCR), which sells Keurig single-serve coffee brewers and associated K-cup portion packs, has a number of patents expiring that should ease the entry of competitors into that market, Wedbush's Mr. Setyan said.

In addition, coffee prices have begun to ease recently, taking downside pressure off the bottom line and the stock.

In addition, Peet's is relatively protected from commodity coffee price volatility, Piper Jaffray analyst Nicole Miller Regan said. Peet's, as a high-quality bean purveyor, buys specialty beans more so than exchange-traded coffee. While the input costs follow the same tack, they enjoy more insulation.

Joh. A. Benckiser is the investment vehicle for Germany's Reimann family, which, among other holdings, owns perfume maker Coty Inc. That business is planning a U.S. initial public offering after earlier failing in its bid to acquire struggling Avon Products Inc. (AVP). Joh. A. Benckiser also owns a large stake in Reckitt Benckiser Group PLC (RB.LN, RBGPY), a household-products powerhouse whose brands include Lysol, Woolite and French's mustard.

Joh. A. Benckiser is focused on long-term investments in the broader consumer-goods category. The group's portfolio also includes a minority investment in D.E Master Blenders 1753. The group also owns Labelux Group GmBH, a luxury-goods company with brands such as Jimmy Choo, leather-accessories brand Bally and Belstaff.

In addition to Joh. A. Benckiser, Chicago-based merchant bank BDT Capital is participating in the transaction as an adviser and minority investor.

--Saabira Chaudhuri contributed to this article.

Write to Joan Solsman at [e-mail].

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