There's an interesting merger percolating in the coffee world. Peet's Coffee & Tea (PEET), the chain said to have been the inspiration for Starbucks (SBUX), said Monday it had reached a $213 million deal to buy Diedrich Coffee (DDRX), a big seller of java in single-serving cups for home brewing.
So what's the big deal? After all, small companies buy each other for a few hundred million dollars all the time. But Diedrich is probably the best-performing stock in the United States this year. In fact, it was up a mind-boggling 5,555.56 percent this year before the takeover by Peet's was announced. As recently as late March, it was trading for 42 cents; Peet's agreed to pay $26 a share to take it over.
Despite, or perhaps because of, the world-beating returns its stock has posted this year, Diedrich's deal with Peet's has triggered much head-scratching, foot-stomping and eyebrow-raising amongst analysts, journalists and investors (or at least lawyers looking to sue on their behalf). For example:
Goodwill -- or ill? Howard Penney, an analyst with Research Edge LLC, a New Haven, Conn.-based investment research shop, pointed out in a note to clients that $200 million, or nearly 94 percent, of what Peet's is paying is made up of "goodwill," a term used by accountants to describe the part of a business's value that isn't directly tied to its assets and liabilities.
In other words, if it turns out that the stock market wrong was wrong about Diedrich's prospects, Peet's will have vastly overpaid and could be forced to write down the goodwill acquired in this deal, hurting its earnings.
Into the breach? No sooner had Peet's and Diedrich announced their deal, a handful of law firms that specialize in class-action securities lawsuits said they were looking into the transaction. It seems they're looking for Diedrich shareholders to be perturbed that the company accepted such a low offer. True, its shares have skyrocketed this year. But it's also true that they were even higher than the offer price as Oct. 29.
Buried in the footnotes... Journalist (and occasional DailyFinance contributor) Michele Leder, who specializes in finding the juicy morsels of information companies try to hide in their Securities and Exchange Commission filings, pointed out today that Diedrich decided to announce a new pay package for its chief financial officer on the same day as it struck its deal with Peet's.
What's interesting, however, is that the compensation agreement was apparently reached about a year-and-a-half ago. And it provides for a $2.1 million payout if the company experiences a "change of control" like an acquisition.
For a relatively small deal, there certainly seems to be a lot of buzz surrounding this acquisition.
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