I have been chronicling the trials and tribulations of Kreurig Green Mountain Coffee Roasters (GMCR) for almost a year now. I’ve written four posts before which are listed and linked below in chronological order:
- Was David Einhorn Correct All Along?
- Revisiting David Einhorn’s Short Play
- K-cup Implosion
- A Kold Kall
I have had a bearish outlook on GMCR for quite some time. I love their K-cup products and have used them to successfully power through two CFA exams and a master’s degree, but I thought their business model was in decline and did not warrant their premium valuations. At the end of the day they are selling a commodity as their K-cup patent had expired a few years ago. Their latest attempts to take the brakes off of their decelerating growth and collapsing profit margins, Keurig 2.0 with digital rights management and the Keurig Kold, felt desperate and doomed for failure.
It turns out that I was partially wrong as something unexpected has happened. A white knight has come to the rescue of GMCR and has agreed to acquire GMCR for $92 per share. When I wrote my last post, GMCR was priced at $50.84 per share. Today GMCR is trading at $89.88 per share. The difference between the $92 per share acquisition price and the $89.88 current price represents the risk premium that the acquisition is not completed for whatever reason. The $92 acquisition price is still well below GMCR’s price of $118.89 from when I first wrote, “Was David Einhorn Correct All Along?”, so it wasn’t a complete disaster of a bear case for me. I was a bit surprised to see this happen though at this high of a valuation. Perhaps the JAB Group (the acquirers of GMCR) has more practical applications for GMCR’s technology in mind besides making instant eight ounce chilled glasses of cola?
I don’t know.
One thing is for certain, there is never a dull moment in capital markets.
Disclosure: I have no positions in any stocks mentioned in this post and have no plans to initiate any positions in any stocks mentioned at the time this was written. This post is for informational purposes only and is not intended as investment advice for anyone.