Case Study: Keurig Green Mountain

Introduction How many times have you ever said to a new or old acquaintance do you want to grab a cup of coffee? Coffee is a drink where we can get to know someone better or just sip while catching up. The latest Hoover’s (2015) market research Keurig Green Mountain is the third largest manufacturer and distributor of coffee and coffee-related products behind both Starbucks and Nestle. To capture greater market share and to rebound from a disappointing 2015, Keurig Green Mountain is considering increasing their operations into Ethiopia. This paper examines the monetary impact of them expanding into Ethiopia, the possible methods of financial options in the capital markets or through a business combination, and demonstrates the fiscal performance

Our primary argument is simple, the cost of internal funds and the demand for external financing vary because of possible investment costs and the external financing costs. The effect and relationship of these two factors are paramount in making an educated decision. Keurig Green Mountain would be prudent to consider the debt-to-equity ratio, total long-term liability ratio, and cash flow to determine if they can service an expansion. According to Almeida & Campello (2008) Keurig Green Mountain needs to explore three specific areas to determine the best route: The opportunity costs, constraints of current investments on credit, and the high costs that may exist for external financing. Figures 6 through 8 show the different options for Keurig Green Mountain whether they issue a bond, commercial paper, or via a traditional loan. JAB Holding Company recently purchased Keurig Green Mountain, and this places them in a stronger position to consider a merger or acquisition themselves. J.M. Smucker is slightly larger, and they own distribution rights to Dunkin Donuts, Folgers, and Millstone. A merger could present a promising opportunity to gain market share, but would be a different strategy for expanding operations and would have a different

If you look at the key industry margins and compare them to Keurig Green Mountain, they display the financial strength of Keurig Green Mountain. They are well above average and proposing to construct a 500,000 square foot $18.5 million production and distribution plant in Ethiopia is sound. Keurig Green Mountain has the cash flow and resources and free from any legal or ethical restraints. They anticipate breaking ground in the fourth quarter of 2016 and will deploy a leadership team from their Vermont headquarter.