Green Mountain Sells $250M stock - Analyst Blog

Green Mountain Coffee Roasters, Inc. (GMCR) entered into an agreement with Luigi Lavazza S.p.A to sell $250 million worth of common stock to the latter. Lavazza will purchase $250 million newly issued shares of GMCR's $0.10 par value Common Stock, or approximately 7% of Green Mountain's current outstanding shares.

Green Mountain will sell shares at a price equal to the 60-day volume weighted average price at closing minus 7.5%. The transaction is expected to close in September 2010 pending the approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The agreement restricts Lavazza from selling the purchased shares for a year. However, after a year Lavazza can sell these shares in the open market or to institutional investors. The agreement also gives Lavazza the right to vote in concert with the company's Board, have an observer at the company's Board meetings and, under certain circumstances, a right to designate a Board member.

Also, the agreement contains a 5-and-one-half-year customary standstill period, subject to certain exceptions after a one-year period, including the right to purchase additional shares up to 15% of Green Mountain's outstanding shares.

The proceeds will be utilized by Green Mountain for general corporate purposes as well as financing growth plans and initiatives.

Green Mountain and Lavazza also intend to reach an agreement where Lavazza will manufacture new single-serve espresso machines and single-serve espresso capsules designed for use with such machines, and Green Mountain will cooperate for their development. The machines and/or capsules will be available not prior to the company's fiscal year 2013.

The new machines will complement the company's line of Keurig single-cup coffee brewers. Green Mountain may likely distribute, market and sell its existing coffee espresso single-cup machines utilizing Lavazza's espresso technology for in-home use in the United States and Canada.

During the conference call, Green Mountain expects sales to grow 58% - 63% in fourth quarter 2010 and 66% - 68% in fiscal 2010. For fiscal 2011, management has projected 44% to 50%. The company also provided earnings per share guidance in the range of $0.18 to $0.20 per share for fourth quarter 2010, $0.69 to $0.71 for fiscal 2010 and $1.15 to $1.20 for fiscal 2011.

The Zacks Consensus Estimate for fourth-quarter 2010 is earnings of 20 cents per share. For fiscal 2010 and 2011, the Zacks Consensus Estimates are 60 cents per share and $1.17 per share, respectively.

We expect the new machine and the capsules to augment the company's sales further as well as capitalize on its existing distribution channels.

We maintain our "Neutral" recommendation on Green Mountain. The quantitative Zacks #3 Rank ('Hold') for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Waterbury, Vermont. Green Mountain Coffee Roasters produces coffee, tea and hot cocoa from its family of brands of its Specialty Coffee business and manufactures single-cup brewing systems through the Keurig business unit.

 
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