KKD Krispy Kreme Doughnuts, Inc.

By Julie Jargon and Mike Esterl 

JAB Holding Co., the European investment fund with a fast-expanding stable of famous brands ranging from Caribou Coffee to Jimmy Choo shoes to Durex condoms, has agreed to acquire Krispy Kreme Doughnuts Inc. for about $1.35 billion.

JAB will take Krispy Kreme, the Winston-Salem, N.C.-maker of hot glazed doughnuts, private.

The money manager for Germany's wealthy Reimann family has quickly built up a global coffee juggernaut to challenge Nestlé SA. Earlier this year a JAB-led investor group completed its acquisition of Keurig Green Mountain Inc. for about $14 billion. Last summer JAB paid roughly $5 billion for control of Mondelez Inc.'s coffee business. It also owns Peet's Coffee & Tea, and Danish coffee-bar chain Baresso Coffee A/S.

Krispy Kreme began selling doughnuts in North Carolina in the 1930s and its "hot now" signs have long been a fixture on Southern U.S. roadsides. But it also has had several ups and downs since becoming a publicly traded company in 2000, even as its sales grow. Once famous for the long lines it drew when it opened a new store, the chain nearly imploded in the mid-2000s after it grew too quickly, took a hit from low-carb diets and endured a Securities and Exchange Commission investigation into its accounting practices.

Krispy Kreme, which also sells coffee, is in a highly competitive market with Starbucks Corp. and Dunkin Brands Inc. It faces increasing competition from Tim Hortons, owned by another deep-pocketed foreign investor: 3G Capital Partners LP, a Brazilian private-equity company, which is trying to expand the U.S. presence of the Canadian doughnut and coffee chain it bought last year.

Luxembourg-based JAB manages tens of billions of dollars in assets and has quietly built up a far-flung stable of household brands despite maintaining a low public profile.

JAB owns a minority stake in U.K.-based Reckitt Benckiser Group PLC, whose brands include Lysol, Scholl and Woolite. It is also the controlling shareholder of beauty company Coty Inc., whose fragrances and cosmetics uses brand names including Adidas, Calvin Klein and OPI. In addition to Jimmy Choo, its shoe portfolio includes Bally.

Monday's announced deal to acquire Krispy Kreme "is yet another example of our commitment to investing in extraordinary brands with significant growth prospects," said Peter Harf, a JAB senior partner, in a written statement.

BDT Capital Partners will be a minority investor in Krispy Kreme. The JAB-led deal, which has been unanimously approved by Krispy Kreme directors, represents a premium of about 25% over Friday's closing stock price.

JAB declined to make anyone available to discuss its plans for Krispy Kreme. Industry watchers speculated JAB could pair Krispy Kreme with one or more of its coffee brands. JAB, which also owns Einstein Bros. Bagels and Caribou Coffee, has been merging the two shops in some markets into co-branded stores simply called "Coffee & Bagels."

Krispy Kreme has been trying to bolster its coffee business as a way to attract customers who might not want doughnuts. The company has launched new coffee drinks and what it calls edible coffee treats, such as cappuccino and caramel macchiato-flavored snacks.

The SEC in 2009 settled its investigation into Krispy Kreme's accounting, with former executives agreeing to pay back more than $630,000 in ill-gotten gains and $150,000 in fines. The former executives didn't admit wrongdoing.

Krispy Kreme changed management, closed U.S. stores and focused on international expansion. In March it reported the seventh consecutive year of positive same-store sales at company-owned stores, with growth of 2.4%. Revenue in fiscal 2016 increased 5.8% to $518.7 million and net income grew 7.8% to $32.4 million. Last year it also increased its global store count by 14% to more than 1,100 stores.

But the company issued lower-than-expected guidance for fiscal 2017. The company said it expects earnings per share for fiscal 2017 of $0.87-$0.91 per share versus expectations of $0.93 per share.

The Reimann family dynasty dates to 1823, when Johann Adam Benckiser founded a chemical company bearing his name in Pforzheim, Germany, according to wealth analysts Wealth-X. Chemist Ludwig Reimann joined Benckiser as co-owner in 1828 and took over the company after a Benckiser heir sold his stake to Mr. Reimann in the mid-1800s.

In 1999, Benckiser merged with British consumer-goods company Reckitt & Colman to form household cleaning company, Reckitt Benckiser Group PLC.

Forbes magazine in March estimated the wealth of four adopted Reimann siblings Wolfgang, Matthias, Stefan and Renate at $4.4 billion each, or a combined $17.6 billion.

Nina Adam in Frankfurt contributed to this article.

Write to Julie Jargon at julie.jargon@wsj.com and Mike Esterl at mike.esterl@wsj.com

(END) Dow Jones Newswires

May 09, 2016 16:45 ET (20:45 GMT)

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