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Issue Date: Vol. 54, No. 6, June 2014, Posted On: 5/8/2014

Mondelez And DE Master Blenders Merge Coffee Businesses

Emily Jed
TAGS: coffee industry, office coffee news, Mondelez International Inc., D.E. Master Blender 1753 B.V, largest coffee companies, Jacobs Douwe Egberts, Gevalia, Tassimo, Kenco, Jacobs, Carte Noire, Douwe Egberts, L'Or, Pilão, Senseo, Kraft Foods, Acorn Holdings, Bart Becht, Irene Rosenfeld

DEERFIELD, IL -- Mondelez International Inc. and Dutch rival D.E. Master Blenders 1753 B.V will form a new company, merging the world's second- and third-largest coffee businesses. The new company, to be called Jacobs Douwe Egberts, will be headquartered in the Netherlands, with projected annual revenue of more than $7 billion. It is expected to be the world's leading "pure play" coffee company (publicly traded and focused on a single business), but Nestlé will remain the world's coffee leader.

The deal is part of a $3.5 billion restructuring program at Mondelez. The Deerfield, IL, maker of Oreo cookies, Trident gum and Ritz crackers will receive about $5 billion in cash and own a 49% equity interest in the new company. The new combined coffee company will unite Mondelez's iconic Gevalia, Tassimo, Kenco, Jacobs and Carte Noire brands and D.E. Master Blenders' Douwe Egberts, L'Or, Pilão and Senseo brands.

Mondelez's coffee business had about $3.9 billion in revenue in 2013, representing 11% of total revenue, while D.E Master Blenders, which was spun off from Sara Lee Corp. in 2012, had about $3.4 billion in sales.

Mondelez, which split from Kraft Foods Group Inc. in late 2012, said its snack business will generate about 85% of its overall revenue upon completion of the deal.

The deal only includes Mondelez's coffee business outside of France. Acorn Holdings, the investor group that bought D.E. Master Blenders last year for nearly $10 billion, has made a separate offer for the French business.

Acorn will have a majority stake in the combined company and will also hold a majority of the board seats. D.E. Master Blenders chairman Bart Becht will serve as chairman of the combined business.

The news comes as Mondelez reported adjusted first-quarter earnings of 39¢ a share, compared with 32¢ a share during the same period last year. Revenues fell 1% from $8.74 billion to $8.64 billion.

Mondelez has been under fire by activist investor Nelson Peltz for weak margins and slow growth. Last year, the food giant announced a plan to streamline operations and deliver $3 billion in gross productivity savings over three years.

Mondelez chairman and chief executive Irene Rosenfeld took a big pay cut last year, with her total compensation slashed 51% to $14 million, following a difficult year that fell short of expectations. Rosenfeld reportedly earned 63% of her target cash incentive award, which was $1.6 million, in part because the company didn't grow as fast as she had planned. The Mondelez chief reportedly also will not receive a raise for 2014.

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