Last week’s $213 million deal to acquire Diedrich Coffee Inc. caps a turnaround—complete with a big Wall Street runup—for the Irvine-based coffee products company.
Emeryville-based coffeehouse operator Peet’s Coffee & Tea Inc. is acquiring Diedrich in a cash and stock deal set to close by year’s end.
Peet’s offer is 28% more than what Diedrich’s shares were worth before the deal was announced. The company’s shares surged last week to a market value equal to the offer, including diluted shares.
Diedrich already had been the biggest Orange County gainer on Wall Street in 2009, with a 5,500% gain before the offer.
A hot product, growing sales and profits and a coffee rally helped drive up Diedrich. Some takeover speculation also likely was a factor.
Diedrich saw an influx of growth stock investors, many looking for the next Green Mountain Coffee Roasters Inc.
Shares of the Vermont coffee wholesaler also have surged this year.
Both companies are riding a new type of single-serving coffee package found in offices and stores.
Diedrich, with yearly sales of about $60 million, is one of a handful of companies licensed to make coffee for what are known as K-Cups, developed by Keurig Inc., part of Green Mountain Coffee Roasters.
K-Cups allow you to brew a single cup of coffee in a special machine by putting one of the K-Cups into the slot where coffee grounds and a filter would go on other machines.
They’ve been a hit among companies looking for ways to cut back on the cost of coffee provided for employees.
Wal-Mart Stores Inc. and other retailers also sell them.
K-Cups were a key driver for Peet’s. It plans to tap grocery stores already selling its coffee for expanded sales of Diedrich’s K-Cups.
That could set the stage for a clash with Green Mountain Coffee Roasters, which has been expanding among grocery stores.
For Diedrich, an eventful 2009 comes after a long running transition from coffeehouse operator to wholesaler.
Not long along, some had left Diedrich for dead after a bruising battle with Seattle-based Starbucks Corp. and a period of languishing afterward.
The company used to run coffeehouses before getting rid of the last of its Diedrich stores by 2006, when it sold 40 of them to Starbucks.
Earlier this year, Diedrich sold off the last of its retail operation when it sold its Gloria Jean’s Coffees chain to Praise International North America, an affiliate of Australia’s Gloria Jean’s Coffees International Pty Ltd., for $3.1 million.
Diedrich then shifted its focus to providing coffee to restaurants, offices and coffeehouses. The company’s wholesale business has grown this year, providing a double boost along with K-Cups.
Chairman Paul Heeschen and his Newport Beach-based Sequoia Enterprises LP are the big winners in the buyout. They own about 60% of Diedrich, a stake worth about $125 million in the deal.
Martin Diedrich founded the company in 1983. He left in 2004 and no longer is a significant shareholder, if at all.
Martin Diedrich now runs Kéan Coffee with coffeehouses in Newport Beach and Tustin.
One other possible winner in the deal: lawyers. Last week a handful of law firms said they were looking into possible shareholder lawsuits over the deal.
Among other things, they cite the deal’s price, which is about 15% lower than Diedrich’s high for the year hit in late October.
