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JAB Beech Inc. is paying $21 per share to take Krispy Kreme Doughnuts, Inc. private.

Can I Still Get My Morning Doughnut?

JAB Beech Inc. is paying $21 per share to take Krispy Kreme Doughnuts, Inc. private. That price represents approximately a 25% premium on the closing price of $16.86 from Friday, May 6. The deal is worth approximately $1.35 billion. The transaction is expected to close in the 3rd quarter, after it was unanimously approved by Krispy Kreme’s board of directors.

JAB Beech already owns Keurig Green Mountain, Peet’s Coffee & Tea, Stumptown Coffee Roasters, Caribou Coffee, Einstein Noah Restaurant and Intelligentsia Coffee.

Krispy Kreme has over 1,100 doughnut shops in more than 26 countries. That’s a lot of doughnuts!

Krispy Kreme went public in 2000 and its stock reached an all-time high in 2003 of $50 per share, a gain of 235% from its IPO price. Krispy Kreme was one of the market’s darlings after its IPO as it added stores at a rapid clip and showed steadily increasing sales and profits. In 2004 the Company suffered its first quarterly loss. The Company then experienced accounting irregularities, executive changes, shareholder and employee lawsuits, and allegations of channel stuffing; and became part of an SEC enforcement action. The Company was accused of inflating its earnings and creating an incentive plan which operated as a de facto reserve accounting mechanism, virtually guaranteeing reported quarterly earnings would equal their guidance plus $0.01 per share. Additionally, the Company was accused of engaging in round-trip transactions in connection with the reacquisition of franchisees, allowing the Company to record additional income.

The Company rebounded after changing management and subsequently focusing on profitability and growth:  closing unprofitable locations, increasing its television and radio advertising programs, furthering its international operations, and focusing on other products such as coffee.

Today’s announcement is proof that a struggling company can be turned around with the proper management.  Peter Harf, Senior Partner at JAB, felt this acquisition was “another example of our commitment to investing in extraordinary brands with significant growth prospects.”

The new entity will be a serious contender to Dunkin’ Donuts market dominance. As for me, I can still get my morning doughnut!

Eric Altstadter CPA is an Audit Partner with over 30 years of experience working with public companies and privately held businesses. He is the Editor-in-Charge of the firm's SEC Trends & Developments newsletter and a member of NY State Society of CPAs.

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