Italy\'s Lavazza may raise Green Mountain stake

"I do not exclude at all that there may be an increase in Lavazza's stake in Green Mountain," Lavazza Chief Executive Gaetano Mele told reporters on Tuesday.

Lavazza bought $250 million in newly issued shares this year in the leading U.S. single-cup coffee machine maker, or about 7 percent of Green Mountain's outstanding shares before this capital increase. [ID:nN10180439]

Under this deal, Lavazza will keep its stake in Green Mountain unchanged for a year.

The Italian company might then raise the stake, depending on success of a coffee machine distribution agreement with Green Mountain, Mele said.

Green Mountain shares were flat at $31.95 at 1558 GMT.

Lavazza's potential stake-building may come through another share issue by Green Mountain, Mele said, adding it was too early to talk about details.

Lavazza had bought the Green Mountain stake to expand in the United States, the world's biggest coffee market by consumption, he said.

The group also wants to boost its clout in the capsule coffee market, which accounts for 4 percent of global coffee demand and is growing rapidly as more people want to drink high-quality coffee at home.

Switzerland's Nestle "is the leader in this market ... Why cannot we, together with Green Mountain, become the second-biggest player?" Mele said.

Green Mountain Keurig coffee brewers compete with Nestle's Nespresso machines.

Mele said Lavazza and Green Mountain planned to launch a new capsule coffee machine which will make cappuccino, or creamy milk coffee, on the U.S. market by May 2012.

Green Mountain and Lavazza aim to produce 7 billion to 7.5 billion coffee capsules in 2011, Lavazza said.

EYES ON COLOMBIA

Lavazza plans to expand in Latin America, eastern Europe and Asia, Mele said. This year it bought coffee company Coffice in Argentina and coffee shop chain Onda in Bulgaria.

The group has also looked at opportunities in Colombia, a major coffee producer. Lavazza could consider small acquisitions there as a base for further expansion in the region, he said.

Lavazza has yet to find a target in Colombia, but a deal could materialise as early as next year, he said.

Family-owned Lavazza will continue to finance potential acquisitions itself and does not need to list shares or open up its capital for outside investors, Mele said. "Lavazza will remain autonomous for many years."

The company has annual cash flow of about 100 million euros and had a 500 million euro cash pile before the Green Mountain deal, he said.

Lavazza, which operates in more than 90 countries, will raise roasted coffee prices on its markets by 9-16 percent starting from January 2011.

The increase will partly compensate for higher costs, which spiked on the back of soaring green coffee prices, Mele said.

Lavazza kept roasted coffee prices stable throughout this year thanks to purchasing all its green coffee requirements for this year in the first half of 2010, Mele said.

But now Lavazza has to pay much higher prices after they shot up 60 percent in the second half of this year compared with the average price for the first six months, he said.

Mele said he did not expect green coffee prices to fall in 2011, and as a result coffee consumption could suffer.