The planned IPO for the combined Jacobs Douwe Egberts (JDE) and Peet's Coffee business would likely be 'credit positive' for investor parent JAB Holding, Moody's has said, as it would 'further increase the liquidity of its portfolio of investments and potentially bring large sums of cash to be redeployed within JAB Holding'.
Moody's Investors Service was commenting following the announcement earlier this week that JAB was to merge JDE and Peet's and explore an IPO, bringing together leading brands such as L’OR, Jacobs Coffee, Douwe Egberts, Senseo, Tassimo, Moccona, Kenco and Peet's.
Contingent Instruments
However, Moody's said that the announcement has 'not addressed any potential implication on the sizeable contingent instruments' still sitting at Acorn Holdings, the holding company that holds JAB's Keurig Dr Pepper and the newly-combined JDE Peet's businesses.
'While we recognise that listing the combination of JDE and Peet's on a standalone basis is more likely to generate higher shareholder value than to list a holding company such as Acorn Holdings, a listing of Acorn Holdings would have most likely lead to a conversion of the preferred shares and equity warrants into common equity, thereby cleaning up the structure," Moody's said.
It noted that under the current scenario, the contingent instruments would 'stay in place' if not redeemed with the IPO proceeds of the listing of JDE Peet's.
'The combined entity should also bring a more meaningful and regular stream of dividends to JAB Holding thereby increasing the issuer's interest cover, another positive,' it said.
Credit Standing
Moody's said that although the transaction will be positive for the combined entity's business profile, it is 'too early to assess' the potential impact on JDE's credit standing, due to the presence of 'too many unknowns', Moody's said, 'including whether the existing debt at JDE will remain in place or refinanced at the combined entity level, the dividend and financial policies that the combined entity will have, and the potential synergies and integration costs resulting from the combination of the two companies'.
The combined JDE Peet's business will have revenues of around €7 billion and a presence in around 140 countries, with the two businesses complementary to each other, according to Moody's.
'The combination may bring both cost and revenue synergies although this has not been quantified at this stage,' it said.
Moody's noted that the deal follows not long from the announcement by Coty Inc that it is to sell its Professional and Hypermarcas businesses, 'two positive credit events if well executed', it said.
That deal should help Coty 'restore some balance sheet flexibility, a prerequisite to a stronger recovery in the value of this investment for JAB Holding'.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine
