AMSTERDAM German investor Joh A Benckiser (JAB) is in talks over a 6.4-billion-euro deal (5.4 billion pounds) to buy the owner of Douwe Egberts coffee and bolster its position in a hot drinks industry benefiting from innovation and emerging market growth.
Shares in Dutch coffee and tea firm D.E Master Blenders 1753 DEMB.AS leapt over a quarter on Thursday after it said it had received a bid proposal from JAB, the investment vehicle of the billionaire Reimann family which is already its top shareholder.
JAB has been building a portfolio of brands including Caribou Coffee Co Inc CBOU.O and Peet's Coffee & Tea Inc PEETC.UL to become a powerhouse in an industry being fuelled by new products like single-serve coffee brewers and demand from emerging middle classes in developing markets.
D.E Master Blenders, whose brands include Senseo coffee pods and machines as well as Douwe Egberts and Pickwick tea, was spun off last year by U.S. group Sara Lee, now known as Hillshire Brands, and is the No. 3 global coffer player after U.S.-based Kraft Foods KRFT.O and Swiss market leader Nestle NESN.VX.
The Dutch firm has struggled to benefit from a growing global industry, in part because of its exposure to austerity-hit European 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 mooted as potentially interested parties.
D.E Master Blenders said it had agreed to open its books to JAB based on its proposal to pay 12.75 euros a share on a fully-diluted basis, including any future dividend, but that talks were at an early stage and there was no guarantee of a deal.
A spokeswoman for JAB declined to comment.
At 11.25 a.m. British Time, D.E Master Blenders' shares were up 27.6 percent at 12.25 euros. The stock had previously made little progress since the spin-off from Sara Lee, closing at 9.61 euros on Wednesday compared with its debut price of 9.79 euros.
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 (RB.L). The family also controls fashion group Coty COTY.UL, 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 reported a net profit of 92 million euros for the period July-December 2012, partly because of 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.
($1 = 0.7824 euros)
(Additional reporting by Gilbert Kreijger, Ivana Sekularac and Simon Jessop; Editing by Mark Potter)