Boston, MA 05/12/2014 (wallstreetpr) – The snacks manufacturing company Mondelez International Inc (NASDAQ:MDLZ) has agreed to join forces with D.E. Master Blenders for a joint coffee company venture to be based in Netherlands. The move allows Mondelez to take on rival Nestle in the coffee market. Furthermore, the move allows the company to focus more on its mainstay products – snack portfolio.
Mondelez and D.E. Master Blenders are the second and third largest coffee companies in the world, respectively. Together with Nestle, the global coffee leader, the companies account for more than 40 percent of the coffee sales in the world.
Though Mondelez International Inc (NASDAQ:MDLZ) and D.E. Master Blender hold the second and third position in the coffee market, their performance and market share is dwarfed by Nestle. Therefore, the latest move to team up in a joint venture will not only help the companies to reduce their overhead costs but also take on Nestle in the battle for the control of the coffee market. Their combined sales and marketing teams are likely to give Nestle a run for its money.
Sharing stake in the new company
The combined coffee company will be named Jacobs Douwe Egberts and is expected to have at least $7 billion in annual revenue. Under the joint venture agreement, Mondelez International Inc (NASDAQ:MDLZ) will receive a cash payment of about $5 billion and acquire 49 percent stake in the company.
Mondelez International Inc (NASDAQ:MDLZ) anticipate the merging of its coffee business with D.E. Master Blender to save it about $1.5 billion by 2018. The move to give up the coffee business into a joint venture seems to be a product of the restructuring campaigns spearheaded by activist investor Nelson Peltz who earlier this year gained a seat on the board of Mondelez.
1Q2014 decline
Mondelez International Inc (NASDAQ:MDLZ) had little to show for the 1Q2014 performance. The company suffered 70 percent profit decline. Therefore, the latest quarter saw a net profit of $163 million or 9 cents per share. That compared with a net profit of $536 million or 30 cents per share. Revenue was also down 1.2 percent to $8.64 billion.
The impact on the bottom-line confirms the need to join forces to support the underperforming segment just as the management has done with the coffee business.
