Mondelēz and DE Master create a master blend

The news broke yesterday that Mondelēz International would be combining their coffee business with D.E Master Blenders. The result of this merger is a new Netherlands based entity entitled Jacobs Douwe Egberts which will contain a number of high profile beverage brands in its portfolio such as Tassimo, Douwe Egberts and Kenco.

According to a statement released by Mondelēz, around $7bn/£4.1bn/€5bn in revenue is expected to be generated by the new company on an annual basis.

Market analysts are predicting that the merger will cause major headaches for its global competitors, with fellow European-centric companies facing an immediate threat.

Putting the size of the deal in perspective, according to Euromonitor the current leaders in worldwide coffee sales are Nestle with around a 23% market share. With their combined resources Jacobs Douwe Egberts will account for 17% of global sales.

There is plenty of room for growth too for Jacobs Douwe Egberts. The German and UK markets represent advantageous areas to exploit whilst they inherit leading positions in France, the Netherlands and Belgium.

However it is being presumed that their position in France could bring them into the spotlight of regulators and union scrutiny – something which Nestle has recently experienced.

The merger also comes at a time when Nestle are facing a period of relative uncertainty. Their brand of coffee machines Nespresso – backed by an advertising campaign fronted by George Clooney – does enjoy an advantageous position in the European market, though they are attempting to bring the machine across the Atlantic into an area where Keurig Green Mountain’s range rules supreme.

The move to America is a potentially risky venture, especially at a time when European legislators have been looking into the legalities of ‘closed source’ coffee, which would hit Nestle’s bottom line as the market for coffee pods will open up. Though with Keurig’s plans for the inclusion of DRM on their second generation machines, the United States may, initially, provide fewer legal barriers.

In the terms of the agreement Mondelēz would receive $5bn and take a 49% equity stake in the new company. D.E Master would hold a majority stake moving forwards.

The deal is still awaiting regulatory approval, but it is expected to be completed by the end of next year.