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Green Mountain Coffee Roasters Inc. (Nasdaq: GMCR) stock climbed 26% today (Thursday) and surged as much as 60% after-hours Wednesday following the announcement of a strategic deal with The Coca-Cola Co. (NYSE: KO).
Investors cheered the news that the Waterbury, Vt.-based company has signed a 10-year agreement with the world's largest beverage company. Over the next decade, the pair will collaborate on developing and introducing Green Mountain signature K-cups for Coke's global brands, to be used in GMCR's home brewing machines.
Additionally, Coca-Cola agreed to take a 10% stake in Green Mountain. Under the terms of the deal, Coke will acquire roughly 16.7 million newly issued shares, priced at $74.98, for about $1.25 billion. The transaction is expected to close next month.
Coke also has the option to boost its minority stake up to 16% via open-market purchases of Green Mountain common stock over the next 36 months.
In turn, Green Mountain becomes the official maker of Coke's single-serve cold beverages built around its popular Keurig pod-based system.
The deal is a win-win for both Green Mountain and Coca-Cola.
Coffee is an extremely profitable business and Coke is the most recognized brand in the world.
"This gives Green Mountain a beverage partner with some hugely powerful global brands," John Sicher, editor and publisher of Beverage Digest, told Reuters. "For Coke, it gives them access to some really cool, new cutting-edge pod cold beverage technology."
CNBC's Jim Cramer called it a game-changer.
"People felt that hot [coffee] had peaked. Suddenly you have cold and you have unlimited firepower and you have international distribution."
Indeed, Coca-Cola has a commanding presence in developed, emerging, and frontier markets. And, Green Mountain will help Coke stay at the forefront of industry trends by offering products that appeal to consumers who are cost-conscious, seek convenience, and are interested in "green" products.
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Green Mountain still retains the option to do other deals with other cold drink makers, like Coke's main rival PepsiCo Inc. (NYSE: PEP).
"We'll do deals with brands consumers love," Kelley told Reuters. He noted that Green Mountain maintains coffee deals with major chains including Starbucks Corp. (Nasdaq: SBUX) and Dunkin Brands Group Inc. (Nasdaq: DNKN).
Green Mountain said a portion of the investment proceeds will be used to expand Keurig's upcoming line of "cold" products. Keurig Cold single-serve beverage system, currently in the development stage, is expected to hit stores next year. The java giant also announced plans to launch a new hot drink brewing system this fall.
News of the Coke collaboration eclipsed Green Mountain's better-than-expected fiscal Q1 report, separately reported on Wednesday.
GMCR posted earnings per share (EPS) of $0.96, beating analysts' estimates by $0.06, and up from $0.76 in the same quarter a year ago. Revenue came in at $1.39 billion, up 3.6% year over year. The company expects Q2 EPS of $0.93 to $0.98 and full-year 2014 EPS of $3.75 to $3.85.
GMCR traded as high as $110.50 intraday Thursday, a fresh 52-week high, on heavy volume. The stock has come a long way from its 2012 plunge to around $17 a share – down from $108 in September 2011.
Money Morning Defense & Tech Specialist Michael A. Robinson joined FOX Business' Stuart Varney Thursday to talk about whether or not GMCR stock is a sell at these new high prices. Watch for Robinson's take:
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