JAB Holding Adds Another Gem To Its Portfolio

JAB Holding Co., the multi-billion dollar European investment firm controlled by Germany’s Reimann family, is adding another iconic brand to its portfolio of several well-known consumer staples companies. On Monday, the firm announced that it will be acquiring  Krispy Kreme Doughnuts (NYSE:KKD)  for $1.35 billion or $21 per share. The deal has been unanimously approved by Krispy Kreme’s Board of Directors and represents a premium of about 25% over the closing price of Krispy Kreme’s stock on May 6.

Displaying his faith on JAB Holdings to take the iconic brand forward, Tony Thompson, CEO of Krispy Kreme, said in a statement, “JAB’s experience and industry knowledge make them the ideal partner to help grow the iconic Krispy Kreme brand throughout the world. We remain focused on our long term strategy and continuing to offer our premium, high-quality doughnuts and sweet treats to consumers around the world. We look forward to working with JAB to continue bringing the joy that is Krispy Kreme to a growing number of customer.”

JAB Holding Co. is acquiring Krispy Kreme through its subsidiary JAB Beech Inc., in which BDT Capital Partners, a merchant banking firm owned by former Goldman Sachs vice chairman Byron Trott, holds a minority stake. The entities involved expect the deal to get completed, following shareholders approval, by the third quarter of this year. Krispy Kreme revealed that in light of the merger its Board of Directors has determined to postpone the Company’s 2016 Annual Meeting of Shareholders, which was scheduled for June 14, 2016.

Coffee First, Doughnuts Next

In the last four years, JAB Holding Co. has been on a major buying spree, spending almost $30 billion during that time in acquiring notable beverage brands like Peet’s Coffee & Tea, Espresso House, Caribou Coffee, and Einstein Noah Restaurant Group. In December last year, the firm paid $13.5 billion to take single-serve coffee maker Keurig Green Mountain Inc. private. Though it is heavily invested in coffee, the firm also owns stakes in a variety of consumer-goods companies like Coty, Inc., Jimmy Choo Ltd. and Reckitt Benckiser. The firm is currently headed by three senior partners – Peter Harf, Bart Becht, and Olivier Goudet- all of whom are said to be close to the Reimann family.

Sharing his views on the merger, Mr. Harf said, “We are thrilled to have such an iconic brand as Krispy Kreme joining the JAB portfolio. This is yet another example of our commitment to investing in extraordinary brands with significant growth prospects.”

Going Private = Becoming More Efficient

Founded in 1937, Krispy Kreme opened its 1,000th shop last year in February. The company currently operates over 1,100 shops (several of them company-owned) in 26 countries, including the 300 stores that it operates in U.S.  While it has continued to grow its top-line over the last few years by expanding its presence, its operating margin at 10 percent is among the worst in the quick service restaurants (QSRs) space. Currently, the bulk of the company’s revenue comes from the sale of low-margin products like doughnuts and pastries, unlike rival Dunkin’ Donuts, where coffee and other beverages bring in nearly 60% of the total sales. Experts feel that JAB Holding Co. can significantly improve Krispy Kreme’s margins in the short-term by leveraging the strength of the coffee brands that it owns. Moreover, in the long-run, the firm can push the company towards rapid growth by infusing more capital in a business that currently boasts of no net debt on its balance sheet.

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