The Caribou Coffee Buyout: Three Stocks That Will Feel the Effects

By Jonah Loeb  DEC 18, 2012 3:52 PM

As the coffee giants start snapping up small companies, investors are scrambling to predict what happens next.

 


MINYANVILLE ORIGINAL Joh. A. Benckiser Group, owner of Peet’s Coffee & Tea (NASDAQ:PEET), announced yesterday that it plans to buy out Caribou Coffee (NASDAQ:CBOU) at $16 per share. This is not, on the surface, huge news; both companies are respected players in the huge coffee industry, but neither is a headline-grabbing name. The deal is made; the world spins madly on.
 
But the deal, minor though it might seem, could be the butterfly that flaps its wings and causes a major storm in the coffee industry. Several big names are in precarious positions within the industry, and this shakeup could change everything for a number of stocks. Here are three that will feel the repercussions.
 
1. Starbucks (NASDAQ:SBUX)
This one is the most obvious. Starbucks is the biggest name in the specialty coffee industry and totally dominant in terms of chain stores. So why should it care what happens beneath it? Bagged coffee, that’s why. Starbucks has been battling for control of the supermarket-coffee market; 61% of consumers aged 18-24 drink specialty bagged coffee rather than traditional coffee like Folger’s (NYSE:SJM), so the combination of two specialty-coffee companies like Peet’s and Caribou strengthens competition in that area. There will probably never be a Caribou on every corner, but Starbucks will have to get serious to beat Benckiser in the battle for bagged coffee, since they're sold side-by-side in supermarkets.
 
2. Tim Hortons (NYSE:THI)
Geography plays a big part in brand identity, and there’s about to be a significant battle for the upper Midwest. Two hundred and twenty-six of Caribou’s locations are in Minnesota, and many others are concentrated in Illinois and Chicago. Canadian breakfast chain Tim Hortons (the dominant coffee chain in the area) has most of its American locations in Michigan, Ohio, and upstate New York. With this powerful new backer, Caribou is well-poised to expand in the area, but consolidation of the industry hasn’t helped investor confidence in Tim Hortons; its stock is down 0.32% today on low volume. Caribou may not have designs on the national market for coffee chains, but it’s in good position to take over the Rust Belt. And while Tim Hortons may control the market in Canada, Caribou's expansion in the Middle East gives it access to areas that Tim Hortons might not visit.
 
3. Farmer Brothers (NASDAQ:FARM)
On the other end of the spectrum, we have companies like Farmer Brothers, which specializes in providing coffee and related products to businesses, restaurants, casinos, and various other places that use large amounts of coffee. While Farmer Brothers isn’t in direct competition with any of the aforementioned companies, speculation is rife among analysts about which company will be the next one bought out by Big Coffee. Farmer Brothers saw its stock leap to a yearly high after the deal was announced, rising above $14 per share for the first time since February 2011. Other small coffee providers (that is to say, prey animals) like Coffee Holding (NASDAQ:JVA) are also feeling the Caribou bump as the ripples from this deal spread throughout the industry.
No positions in stocks mentioned.