Benckiser, aiming for coffee empire, buys Caribou, Peet's

NEW YORK Thu Dec 20, 2012 1:40am IST

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NEW YORK (Reuters) - A relatively unknown German holding company this week made its third move on a coffee company as it tries to assemble a juggernaut that can challenge chains like Starbucks Corp (SBUX.O) and Dunkin' Brands Group Inc (DNKN.O).

Monday's announcement by the tight-lipped private investment firm Joh. A. Benckiser that it would buy Caribou Coffee Company Inc CBOU.O for $340 million came less than two months after it bought Peet's Coffee & Tea for $1 billion and raised its stake in D.E. Master Blenders 1753 DEMB.AS to 15 percent from about 12 percent.

Controlled by Germany's billionaire Reimann family, the firm's holdings already include fragrance company Coty and luxury brands Bally and Jimmy Choo. It is run by three consumer products veterans with ties to giants such as Reckitt Benckiser Group (RB.L), candy giant Mars and Anheuser-Busch InBev (ABI.BR).

Bankers say the group is angling to become a powerhouse in the global coffee business, which is being fueled by innovations like single-serve brewers, new kinds of drinks and emerging middle classes in developing markets.

"They're not trying to build a $5 billion business," said one banker who has worked with JAB. "They're trying to build a $25 billion business. These guys are empire builders."

In a nod to the world's largest brewer, formed by InBev's $52 billion takeover of Anheuser-Busch in 2008, another banker said the group "wants to be the InBev of coffee."

Of JAB's three partners -- Peter Harf, Bart Becht and Olivier Goudet -- Harf and Goudet have served on the board of AB InBev, maker of Budweiser and Stella Artois.

Harf, the chief executive, joined the firm in 1981. A former colleague who knew Harf when he worked at Boston Consulting Group described him as "decisive, hard charging, inventive and bold."

"I'm not afraid of taking risks," Harf said in a profile on the website of Harvard Business School where he studied after earning a PhD from the University of Cologne. "I'm not afraid of losing. I'm not afraid of buying something."

Harf is considered the senior statesman and spokesman of the group, while Becht focuses on operations and Goudet on strategy, according to a person who has worked with the three.

Becht, former CEO of household goods maker Reckitt Benckiser, is from the Netherlands and known for being "extremely smart, demanding and impatient," while Frenchman Goudet, ex-finance chief of candy maker Mars, was "the driving force" behind that company's $23 billion merger with Wrigley in 2008, said a person who has worked with many consumer goods makers including those.

JAB also has a relationship with Chicago-based BDT Capital Partners, founded by Byron Trott, a former senior Goldman Sachs banker and long-time confidant of billionaire investor Warren Buffett. Trott helped advise the Mars family during the Wrigley deal where he worked closely with Goudet.

Trott's firm later advised JAB on Coty's $10.7 takeover bid for U.S. cosmetics maker Avon Products (AVP.N) earlier this year. It was a minority investor in the Caribou and Peet's deals.

HIGH MULTIPLES, GROWING FOOTPRINT

The company paid an earnings before interest, tax, depreciation and amortization (EBITDA) multiple of roughly 21 times for Peet's, which is high compared to other consumer deals. The median multiple for recent transactions in the food and beverage space is roughly 10 times, according to Harris Williams & Co.

Bankers who have worked with them say the partners don't shy away from lofty price tags as they tend to view deals from a long-term strategic perspective rather than a quick flip.

"They have big egos and big aspirations," said another dealmaker who has worked with the group. "Price has never been an object."

With the acquisitions of Peet's and Caribou, JAB is consolidating the heavily fragmented $40 billion U.S. coffee market dominated by Starbucks, McDonald's Corp (MCD.N) and Dunkin' and without other large or mid-size players.

JAB will soon have around 800 U.S. stores, which still pales in comparison with more than 11,000 for Starbucks.

Coffee is a staple for U.S. consumers, with over 76 percent reporting they have purchased the beverage in some form in the last month, according to market research firm Mintel.

The moves also give the firm bagged coffee it can sell at U.S. supermarkets and warehouse clubs, where margins tend to be fatter. That pits it against other giants like Folgers, owned by JM Smucker Co (SJM.N) and Maxwell House, owned by Kraft Foods Group (KRFT.O).

"Coffee is viewed as an attractive market but it is incredibly competitive at this point," said Morningstar analyst Erin Lash. "There are tough competitors there that are focused on growing their position."

But so is JAB. Bankers say it could look to merge with D.E. Master Blenders, the coffee arm of the former Sara Lee, or Green Mountain Coffee Roasters Inc (GMCR.O), though they say the recent rise of that company's stock price makes that move less likely.

Green Mountain and D.E. Master Blenders declined to comment.

Industry sources see the group as a consolidator rather than a brand-builder, so don't expect it to buy anything too small.

"We believe the coffee market is an attractive industry with favorable long-term fundamentals, which is why we are in it," said Tom Johnson, speaking on behalf of JAB. None of the partners were available for an interview.

(Reporting By Olivia Oran and Martinne Geller in New York; additional reporting by Victoria Bryan in Frankfurt; Editing by David Gregorio)

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