D.E Master Blenders 1753 said on Thursday it received a 6.4-billion-euro ($8.2 billion) takeover offer from German investor Joh A Benckiser (JAB), sending shares of the Dutch coffee and tea maker up more than 25 percent.
The maker of Douwe Egberts coffee and Pickwick tea said it had agreed to open its books to JAB based on JAB's proposal to pay 12.75 euros for every share it does not already own. That represents a nearly 33 percent premium to the shares' prior closing price and values the entire company at around $9.7 billion.
The company noted that talks were at an early stage and there was no guarantee of a deal. Its shares closed at 12.05 euros in Amsterdam. Before this, the stock had moved little since last year's spin-off from Sara Lee.
JAB, the investment vehicle of the billionaire Reimann family, is already D.E's top shareholder. Taking over the company would further cement JAB's standing as a powerhouse in a hot drinks industry benefiting from innovation and emerging market growth.
JAB has been building a portfolio of brands including Caribou Coffee Co Inc and Peet's Coffee & Tea Inc , taking advantage of growth in a category being fueled by new products like single-serve coffee brewers and demand from emerging middle classes in developing markets.
"We would envisage a very high chance of a transaction here," said research firm Olivetree in a note, noting that JAB already owned at least 15 percent of D.E Master Blenders and other bidders had not surfaced at the time of the spin-off.
However, they said companies like Mars and Tchibo had been mentioned as potentially interested parties.
D.E Master Blenders, which also makes Senseo coffee pods and machines, was spun off last year by U.S. group Sara Lee, now known as Hillshire Brands. According to Euromonitor, it is the No. 3 global coffer player after Switzerland's Nestle , the market leader, and U.S.-based Mondelez International, which used to be called Kraft Foods before it spun off some businesses into Kraft Foods Group Inc .
By contrast, the market in the United States is dominated by Green Mountain Coffee Roasters Inc, J.M. Smucker Co , which makes Folgers, and Starbucks Corp, Euromonitor says. D.E does not currently have much business in the United States.
Even though the company has a sizeable business in Brazil it has struggled to benefit from a growing global industry. It has a high exposure to austerity-hit European markets, where price increases, put through to offset soaring coffee costs, hurt sales volume.
The Dutch firm said it was being advised by investment banks Goldman Sachs, Lazard, and JP Morgan, and by lawyers Allen & Overy. A spokeswoman for JAB declined to comment.
The indicated price values D.E Master Blenders at a forecast 2013 EV/EBITDA (or the ratio of enterprise value to earnings before interest, tax, depreciation and amortisation) of 16 times, Nomura analysts said in a research note, and a forecast 2013 price/earnings multiple of 24.3.
"As a benchmark, the recently-concluded Heinz deal by 3G was at a 2013 EV/EBITDA of 14.6 times," Nomura said.
Even prior to the bid approach, D.E Master Blenders' shares had traded at a premium to peers, partly on speculation that JAB would increase its stake or eventually make an offer for the firm, and on hopes that a new chief executive, who took over in December, would turn around its performance.
The Reimann fortune comes from the Benckiser chemicals company, founded in 1823 and one of the predecessor companies of London-based Reckitt Benckiser Group Plc. The family also controls fashion group Coty, and owns Labelux Group, manager of luxury brands Bally, Belstaff and Jimmy Choo.
JAB agreed to buy Caribou Coffee Co Inc for about $340 million in December, after snapping up Peet's Coffee & Tea Inc for about $1 billion in July.
It raised its stake in D.E Master Blenders in October to just over 15 percent, although Olivetree said the company could have since upped that to just under 20 percent.
Last month, D.E Master Blenders posted lower-than-expected profits and cut its outlook for 2013, blaming pricing pressures in Europe. It has also experienced higher-than-expected costs at its troubled Brazilian business, which was hit by fraud, tax and inventory issues forcing D.E Master Blenders to restate past financial statements.