Peet's and Green Mountain Fight for K-Cups

Green Mountain Coffee Roasters Inc. (GMCR) and Peet's Coffee & Tea Inc. (PEET) are in a heated bidding war for Diedrich Coffee (DDRX). The latest bid from Green Mountain was up to $35 per share, which is pretty incredible given that Diedrich was trading for as little as 21 cents per share earlier this year.

The real prize is K-Cups, single-serving coffee packets used in Green Mountain's increasingly popular Keurig brewing machines. K-Cup sales are up 63 percent from last year, and Diedrich holds one of the four K-Cup licenses.

Peet's wants Diedrich so it can break into that market, while Green Mountain wants to consolidate its control, which is more profitable than licensing to others. Green recently purchased two other K-Cup license holders, Tully's Coffee and Timothy's Coffees.

But Peet's said this could present antitrust difficulties. "In light of the significant antitrust issues we think are associated with any proposal by GMCR to acquire Diedrich, we believe that the terms of our most recent proposal remain superior," CEO Patrick O'Dea said in a statement.

Buying Diedrich would give Green Mountain more than 80 percent of the single-serve coffee market, but only a tiny fragment in the broader categories of coffee and coffee makers. Whether the FTC would take action really depends on how it defines the market -- though a Reuters blogger points out that the FTC once tried to veto consolidation in the rather narrowly defined "refrigerated pickle market."

Peet's agreed to buy Diedrich back in November for cash and stocks worth $26 a share, but Green Mountain stepped in with a higher offer. Peet's raised, Green Mountain raised, Peet's raised again, and then Green Mountain made its most recent offer of $35 per share in cash.