Shares of Keurig Green Mountain Inc (GMCR) closed at $51.70 on Friday. Down 60% on the year and trading at a mere fraction of its 52-week high above $141/share, there was no solace in sight.
Then, on Monday morning, news of a miracle: JAB Holding Company agreed to buy the coffee maker out, taking Keurig private at a cost of $92 per share of GMCR stock. The all-cash deal represents a 78% premium to Friday’s closing prices.
If you’re a GMCR stock holder, you may have mixed feelings about the transaction. On one hand, you’ve seen your stake jump more than 70% overnight, which is almost unheard of.
On the other hand, $92 per share is still nowhere near the $130’s range where GMCR stock was trading to begin the year, and there was undoubtedly a hope that management could get their stuff together and execute a swift turnaround.
Let me assure you: That was never going to happen. The $92 per share buyout is a saving grace, and should be seen as a huge victory for GMCR stock holders, both short- and long-term.
GMCR — A Company in Disarray
Shares of Keurig Green Mountain were justifiably demolished this year as the company announced horrendous decision after horrendous decision.
Most notably was GMCR’s announcement that it would be pricing a new soda brewing machine, the Keurig Kold, at insanely high prices no reasonable consumer would consider: between $299 and $369.
In contrast, home soda brewers from Sodastream International Ltd (SODA) will run you anywhere from $79 to $199. (SODA stock is also up huge in sympathy today, adding as much as 16% in early trading — but that’s another story.)
On top of the offensive price point, the soda “pods” themselves were overpriced. They’d cost consumers between $1.12 and $1.25 to make an eight ounce soda. Eater captured the absurdity of the proposal in its September headline: “Keurig Wants to Sell You a $300 Machine That Makes Soda More Expensive.”
Oh, and then there was the fact that this overpriced, logically unnecessary Keurig Kold contraption was supposed to be a saving grace for GMCR and the company, which has been seeing revenues fall off a cliff. Last quarter, sales of home brewers and accessories cratered 32%.
The cherry on the top? The Keurig Kold won’t be fully released until the 2016 holiday season.
Bottom Line for GMCR Stock
Considering the company bought back billions of dollars’ worth of stock last year and bought back $624 million of GMCR stock earlier this year at an average price of $119.18 per share, management has been a total and utter failure recently.
Shareholders should be thanking the market gods today for their good fortune. JAB has quite a lot of work to do. With the initial plan being to keep Keurig’s current management team in place as the company operates privately, I doubt the holding company will be able to get a real bang for its buck anytime soon.
But now, thankfully, GMCR stock owners don’t have to worry about that.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.