Green Mountain Coffee and Coca-Cola Strike Soda Deal

Coca-Cola announced last Wednesday that it will buy a 10 percent stake in Green Mountain Coffee Roasters (G.M.C.R.), an investment of approximately 1.25 billion dollars. In return, Green Mountain will produce the company’s single serve  beverages.

G.M.C.R. stock skyrocketed nearly 25 percent after the announcement, closing at $114.85. The company plans to use the investment for product development and to buy back shares.

Green Mountain Coffee began in 1981 as a little cafe in Waitsfield, Vermont. In 2005, McDonalds began selling the coffee in the Northeast, and in 2006, G.M.C.R. aquired Keurig Incorporated.

The Keurig, a home-brew single serve coffee machine, has staved off competition from myriad imitators, most markedly Starbucks’ model, the Verismo. Green Mountain Coffee plans to release the Keurig Cold in 2015. The machine will utilize Keurig’s pod-based technology to produce carbonated sodas and waters, sports drinks, juices, and even teas.

Since the Keurig system currently accounts for over 90 percent of G.M.C.R.’s revenue, the company plans to change its name to Keurig Green Mountain Incorporated.

Brian Kelly, chief executive of the company, said that Coca-Cola’s global market makes for “the perfect combination” with G.M.C.R.’s technology and household expertise. “The cold beverage business has built brands that are global,” Kelly said, and he believes that it can do so with Keurig.

Coca-Cola hopes to use its new partnership with G.M.C.R. to expand its already significant market share and ensure the continued prevalence of Coca-Cola products in American homes.

Green Mountain Coffee could encounter competition from SodaStream, a company that advertised in Super Bowl XLVIII in a bid to reach a broad North American audience. By early Thursday stock had dropped just 2 percent; experts believe that Pepsi may back the Israeli company in response.

The deal is unwelcome news for David Einhorn, whose hedge fund, Greenlight Capital, has accused G.M.C.R. of misleading shareholders. Einhorn first raised concerns about the company’s accounting practices in 2011, and shares dropped a whopping 80 percent in the months after the accusations.

G.M.C.R.’s deal with Coca-Cola took  financial experts by surprise. Coke has traditionally relied on restaurants and bottlers to deliver their product. However, “Coca-Cola sat down at the home beverage table,” said Scott Van Winkle, a Boston analyst with Canaccord Genuity, “and went all in on their first hand.”