- Montreal Gazette -
Industry consolidation might force Quebec coffee services company Van Houtte to sell to a large U.S. beverage or food company after years of stagnant growth. "I don\'t see anyone in Canada really being interested in (it)," said Robert David, a professor of strategy at the Desautels Faculty of Management at McGill University. Shares in the 88-year-old company surged just after Van Houtte announced it was looking for suitors to buy the firm or partner with it. "They have been swimming upstream for a couple of years now," said David, who noted the company\'s inability to position itself well in the prestige coffee market. "The problem is not so much with the company, the problem is with the prevailing conditions with players getting bigger and integrated and the market becoming tougher." He suggested the most likely buyer will be such large consumer product companies as Kraft or Procter & Gamble, which would seek to expand their product line.
Industry consolidation might force Quebec coffee services company Van Houtte to sell to a large u.s. beverage or food company after years of stagnant growth.
"I don't see anyone in Canada really being interested in (it)," said Robert David, a professor of strategy at the Desautels Faculty of Management at McGill University.
Shares in the 88-year-old company surged Friday after Van Houtte announced it was looking for suitors to buy the firm or partner with it.
"They have been swimming upstream for a couple of years now," said David, who noted the company's inability to position itself well in the prestige coffee market.
"The problem is not so much with the company, the problem is with the prevailing conditions with players getting bigger and integrated and the market becoming tougher."
He suggested the most likely buyer will be such large consumer product companies as Kraft or Procter & Gamble, which would seek to expand their product line.
Van Houtte would also be an attractive segue into the coffee market for beverage giants Coke and Pepsi, who want to diversify beyond mature carbonated soft drinks in North America, analyst David Newman wrote in a report.
"By purchasing a fully integrated company like Van Houtte, the suitor would gain access to the entire coffee supply chain, from roasting operations and equipment manufacturing all the way to distribution channels," said the Toronto-based analyst with National Bank Financial.
Soft drink volumes in supermarkets were down 4.6 per cent last year and are expected to fall by another two to three per cent in 2007, he said.
Newman said Coke is a more likely fit because Pepsi has its own portfolio of products and recently established a joint venture with Starbucks for the nearly $1-billion (u.s.) annual market for coffee in vending machines.
Coke plans to compete by introducing its Caribou ready-to-drink coffee and move its chocolate-flavoured Godiva blends into national distribution.
It also launched a hot beverage business under the Far Coast and Chaqwa brands last year.
A venture with Van Houtte would produce synergies and allow Coke to more easily enter the office market, Newman said.
"I view it as being a bit of a growth avenue for those guys," he said.
Other potential bidders could be foodservice companies, coffee retailers and private equity firms. Among the names mentioned are Gordon Food Services, Second Cup, Tim Hortons and Starbucks.
Van Houtte risks being broken up, however, because not all suitors would want a vertically integrated operation that includes roasting, marketing and coffee services.
Still, Newman said he foresees the possibility of a strategic buyer paying $28 to $30 a share.
Van Houtte shares gained 5 cents to close at $22.20 yesterday on the Toronto Stock Exchange.
The company's decision to sell isn't surprising because institutional investors have been pressuring management to boost the company's lacklustre stock performance, which declined by 16 per cent last year, analyst Anthony Zicha said.
Zicha said potential buyers include U.S.-based Green Mountain Coffee Inc. and Aramark.