Starbucks Acquires Teavana; More Beverage Deals On The Way?

Includes: GMCR, MNST, PLSB
by: Vineet Dutta

Just two weeks ago, Starbucks (NASDAQ:SBUX) made a splash, acquiring Teavana (TEA) for $620 million in cash. Starbucks, the company that has made its name in coffee, acquired a company known for its premium teas. Large companies acquiring smaller companies in the consumer beverage market is an frequent occurrence, as large companies look for ways to add to their portfolio of products and the small companies look for ways to get access to distribution points and management expertise.

Starbucks bought Evolution Fresh and Bay Bread LLC since last year. The two consumer beverage giants, Coca-Cola (NYSE:KO) and Pepsico (NYSE:PEP) always are on the hunt for new ways to add to their growing portfolios of products. For Coke, there have been acquisitions of Vitamin-Water, FUZE, and Honest Tea, among others. Some of Pepsi's major purchases have included SOBE, Tropicana, and a $3.8 billion acquisition of a Russian food and beverage company, Wimm-Bill-Dann, just last year. With the focus coming back to M&A in the non-alcoholic beverages market following Starbucks' deal, here are 4 companies that may be next in line.

Monster Beverage (NASDAQ:MNST) is a leading marketer and distributor of energy drinks and alternative beverages. The company markets and distributes Monster Energy brand energy drinks, Monster Energy Extra Strength Nitrous Technology brand energy drinks, Java Monster brand non-carbonated coffee + energy drinks, X-Presso Monster brand non-carbonated espresso energy drinks, M-3 superconcentrated energy drinks, Monster Rehab non-carbonated rehydration energy drinks, Worx Energy shots, and Peace Tea iced teas, as well as Hansen's natural sodas, apple juice and juice blends, multi-vitamin juices, Junior Juice® beverages, Blue Sky beverages, Hubert's Lemonades, Vidration vitamin enhanced waters, and PRE Probiotic drinks.

Reports of Monster being an M&A target have occurred with some degree of regularity. In April, it was reported that Coke explored talks with Monster, but decided to walk away because of the high price tag. However, now the price tag is much lower than it was at the time of the report, and may put the company again back in play. The recent spike in the stock price has been driven by the news out of the FDA. After concerns about the safety of Monster's products, the FDA said that it isn't planning any immediate actions on the company's products. The FDA further noted that there is "a long history of safe use'' of products containing caffeine, and that it is unaware of any scientific studies questioning the combined safety of ingredients in energy drinks.

Pulse Beverage (OTCPK:PLSB) is an emerging growth beverage company that manufactures and distributes Cabana 100% Natural Lemonade and is preparing to "Red-carpet" its flagship product PULSE brand of functional beverages, originally developed by a major healthcare company, in three health platforms: PULSE Heart Health Formula, PULSE Women's Health Formula and PULSE Men's Health Formula.

The company seems to be in a sweet spot in the beverage market due to its focus on beverages containing functional ingredients that have shown to promote health. Coca-Cola has stated that it is searching for another billion dollar brand, and is betting that the next big beverage will be a niche product. Coke has expressed to the company that the beverage industry is trending toward niche beverages such as the company's Pulse brand. The company has brought in an experienced management team, led by its CEO, Robert Yates, who has over 20 years of experience in the beverage industry. He developed his own Kwencher brand, building it into 1.7 million cases in just two years. Notably, Coca-Cola's "proof of concept" benchmark is one million cases.

Green Mountain Coffee Roasters (NASDAQ:GMCR) was founded in 1981 as a small café in Waitsfield, Vermont. In 1993, the company made an early investment in Keurig. GMCR acquired the remainder of Keurig in 2006, and the combined company is changing the way North America prepares its beverages both at home and in the workplace with its Keurig Single Cup Brewing System. Today, GMCR is recognized as a leader in specialty coffee and coffee makers, and is acknowledged for its award-winning coffees, innovative brewing technology and environmentally and socially responsible business practices.

GMCR has been mentioned as a takeover target for a number of years by a wide range of acquirers and with a depressed stock price, now may be the time for these suitors to reappear. In 2010, the company was rumored to be a target of Nestle. An analyst said:

Nestle has had enormous success with automated espresso in Europe and they can't replicate that in the U.S. Keurig is to the U.S. what espresso is to Europe.

Starbucks has also been listed as a potential acquirer of GMCR, although that may be off the table now after the TEA acquisition. A separate report listed McDonald's (NYSE:MCD) as a suitor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.