Israel's Strauss Group Plans Long-awaited IPO of Coffee Joint Venture

Company says it filed confidential prospectus for share sale on Wall Street.

Bloomberg

A long-awaited initial public offering on Wall Street of Strauss Coffee, a multinational joint venture controlled by Israel’s Strauss Group and the Texas-based private equity fund TPG Capital, is finally moving forward, Strauss Group said on Monday.

Strauss, a maker of snacks, fresh foods and coffee, said it had submitted a draft confidential prospectus to the U.S. Securities and Exchange Commission. “There is no certainty that the IPO will indeed be finalized, and if it is, on which date,” Strauss said in a statement. There were no other details.

Shares of Strauss Group closed up 5.6% at 61.90 shekels ($15.61) on the Tel Aviv Stock Exchange on Monday.

The IPO comes seven years after TPG bought a 25% stake in Strauss Coffee for $293 million. Although Strauss Coffee grew through acquisitions to become the world’s fifth largest maker of ground and roasted coffee and No. 4 in instant coffee, the partnership has been stormy.

Strauss and TPG went to court after the U.S. fund sought to block Strauss’ ouster of Todd Morgan, the joint venture’s CEO and a former TPG employee. It lost the fight and Morgan was ousted early last year. The two also squabbled over fees that Strauss was charging the joint venture and disagreements over failed deals.

On Monday, Strauss Coffee reported 2014 net profit had fallen 13.6% to 265 million shekels ($66.756 million) as sales declined 3% to 3.8 billion shekels. The company paid out a huge dividend of 175 million shekels for the year, apparently in anticipation of the IPO.

A string of acquisitions and partnerships transformed Strauss Coffee into the No. 1 coffee seller in Brazil and the fourth-largest in the global retail coffee market and a market leader in Russia and in Central and Eastern European countries. In 2014, it accounted for almost half of Strauss Group’s total sales.

Nevertheless, Strauss Coffee didn’t develop as the two sides hoped it would when TPG bought its stake in 2008. That was just as world financial markets seized up and the world slipped into a deep recession, bringing merger and acquisition deals to a near halt.

Three years ago, TPG and Strauss tried to sell the coffee company’s Russian and Eastern European businesses in order to buy out TPG’s stake with the proceeds. After abortive talks with India’s Tata Coffee and Master Blenders, TPG urged an IPO.

That set off a dispute that ended up in court, along with the dispute over Morgan. Strauss contended that TPG sought to inflate Strauss Coffee’s value while TPG accused Strauss of deflating its value in order to block any chance of an IPO and buy out the private equity fund cheaply. The court dismissed TPG’s allegations.

Nevertheless, an IPO would enable TPG to reduce, if not divest, its Strauss Coffee stake. But The Wall Street Journal report a year ago said TPG valued its Strauss Coffee holding at just 10% more than it paid after holding it for nearly six years.

Meanwhile, Strauss Group, Israel’s second-largest food and beverage maker, reported Monday that it earned an adjusted 84 million shekels in the fourth quarter, up from 70 million shekels a year earlier, thanks to currency hedging transactions as well as lower tax expenses.

Sales edged up 0.3% to 2.08 billion shekels. Excluding the impact of changes in exchange rates, sales grew 2.8%. Coffee sales rose 2.4% to 1.03 billion shekels, led by a 4.8% increase in overseas coffee sales. Excluding currency effects, total coffee sales grew 9.4%.