Mondelez Refines Its Snack Focus

Deal with D.E Master Blenders 1753 creates world's leading pure-play coffee company

Mondelez D.E Master Blenders 1753 coffee (CSP Daily News / Convenience Stores)

DEERFIELD, Ill. & AMSTERDAM -- As a strategic action to further focus its portfolio on snacks and accelerate margin expansion, Mondelez International Inc. has announced its intention to combine its coffee business with that of D.E Master Blenders 1753 BV to create what the companies said is the world's leading pure-play coffee company.

Upon completion of the deal, approximately 85% of Mondelez's net revenues will come from snacks.

"The strategic and cost-reduction actions we announced today underscore our determination to become a leaner, more focused and more nimble global snacking powerhouse," said Irene Rosenfeld, chairman and CEO. "As our first-quarter results show, we're making meaningful progress toward our margin goals, while continuing to deliver solid growth and market shares. These strategic and cost-reduction actions will strengthen our core snacking business, simplify our operations and enhance our ability to deliver world-class margins. At the same time, our shareholders will continue to share in the future growth of the coffee category through our ownership interest in an advantaged, more-focused coffee company."

The deal will accelerating Mondelez's supply chain reinvention program and initiate significant overhead reductions to reduce operating costs to best-in-class levels, the company said. And the $3.5 billion restructuring program, of which $2.5 billion is cash is expected to generate for Mondelez at least $1.5 billion in cost savings by 2018.

"Today's coffee announcement creates an opportunity to further reduce our supply chain and overhead costs and fast-track the implementation of best-in-class cost management practices on a global basis," said Dave Brearton, executive vice president and CFO. "The savings generated by this new restructuring program will enable us to accelerate our margin improvement program. … After 2016, we expect the cost savings will provide additional fuel to fund growth and drive further margin expansion."

The new coffee company, to be called Jacobs Douwe Egberts (JDE), will have annual revenues of more than $7 billion and an EBITDA margin in the high teens. It will be based in the Netherlands. It will hold leading market positions in more than two dozen countries and have a strong emerging market presence, giving it significant revenue synergy opportunities in the $81 billion global coffee category.

The two companies own some of the world's leading coffee brands, such as Jacobs, Carte Noire, Gevalia, Kenco, Tassimo and Millicano from Mondelez and Douwe Egberts, L'OR, Pilao and Senseo from D.E Master Blenders 1753.

With greater focus and increased scale, the new company will be able to operate more efficiently and invest more effectively in innovation, manufacturing and market development to capitalize on the significant growth opportunities in coffee.

"Jacobs Douwe Egberts will leverage the rich histories of both companies, combining our complementary geographic footprints, portfolios of iconic brands and innovative technologies to offer more people around the world more access to high-quality coffee and allowing the company to capitalize on the significant growth opportunities in a highly attractive market," said Pierre Laubies, CEO of D.E Master Blenders 1753 and prospective CEO of the combined company.

Mondelez's coffee portfolio has outpaced market growth since 2010, the company said, thanks to innovations such as the Tassimo multibeverage on-demand brewing system and Millicano wholebean instant coffee.

"By retaining a significant stake in the combined company, we'll continue to benefit from the future growth of the coffee category and share in the synergies and tremendous upside of this leading, one-of-a-kind coffee company," said Rosenfeld.

The parties have entered into an agreement to combine Mondelez's wholly owned coffee portfolio (outside of France) with D.E Master Blenders 1753. In conjunction with this transaction, Acorn Holdings BV, owner of D.E Master Blenders 1753, has made a binding offer to receive Mondelez's coffee business in France. The parties have also invited Mondelez's partners in certain joint ventures to join the new company. The transactions remain subject to regulatory approvals and the completion of employee information and consultation requirements.

In 2013, Mondelez's wholly owned coffee business generated approximately $3.9 billion in revenue, and D.E Master Blenders 1753 generated approximately $3.4 billion in revenue.

The transactions are expected to be completed in the course of 2015, subject to limited closing conditions, including regulatory approvals.

D.E Master Blenders 1753 is a leading pure-play coffee and tea company that offers an extensive range of products through brands such as Douwe Egberts, Senseo, L'OR, Pilao, Merrild, Moccona, Pickwick and Tea Forte in both retail and out-of-home markets. The company holds a number of leading market positions across Europe, Brazil, Australia and Thailand and its products are sold in more than 45 countries.

Mondelez is a global snacking powerhouse, with 2013 revenue of $35 billion. It is a world leader in chocolate, biscuits, gum, candy, coffee and powdered beverages, with billion-dollar brands such as Cadbury, Cadbury Dairy Milk and Milka chocolate, Jacobs coffee, Oreo, LU and Nabisco biscuits, Tang powdered beverages and Trident gum.