Battle For Diedrich Coffee Inc

December 7, 2009

Peet's Coffee & Tea Inc. and Green Mountain Coffee Roasters Inc. trading bids for Diedrich Coffee Inc. coffee roaster The fight has already pushed the price to $290 million from $213 million last month.

Diedrich Coffee is licensed to make single-serving cartridges for Keurig coffee makers. Green Moutain, which owns Keurig, is trying to buy it. Diedrich, a Southern California coffee company since the 1970s, is one of the last two license holders left that have not been acquired by Green Mountain. Green Mountain's Keurig brand is the leading single-cup coffee-brewing system in the United States, and the K-Cup cartridges hold higher profit margins than what roasters get when selling whole and ground beans for use in larger coffee makers.

Peet's, the Emeryville roaster with a large chain of coffeehouses, covets Diedrich's license to make the cartridges, believing it would provide an entry into the home and office single-cup brewing market.

Mitchell Pinheiro, an analyst at Janney Capital Markets, agrees that a Green Mountain acquisition of Diedrich is unlikely to be an antitrust issue. And he believes Green Mountain will be the "winner given its ability to ultimately bid higher and the attractiveness of its all-cash offer."

Regardless of the outcome, it's clear that Diedrich shareholders have already won. The stock rose 12 cents Friday to close at $35.35. A year ago it was just 30 cents a share.

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