Mondelez and DE Master challenge rival Nestle in coffee merger

The US owner of Cadbury and the Dutch group behind coffee brand Douwe Egberts have teamed up to create a $7bn coffee group in a bid to rival Swiss coffee giant Nestle.

Cadbury owner Mondelēz International, which owns brands including Jacobs, Kenco and Tassimo, is currently number two in the coffee market globally while DE Master Blenders was third.

DE Master Blenders has merged with Mondelēz’s coffee business and the new group, to be called Jacobs Douwe Egberts, will have sales of more than $7bn and to rival the current number one player Nestle, which owns Nespresso and Nescafe.

Coffee prices have been rising in the past year due to weather issues in Brazil, one of the main coffee bean growers, and analysts expect the deal to heighten competition in the sector.

The terms of the deal see Mondelēz take a 49 per cent stake in the new group and it will receive a payment of $5 billion in cash for its brands which will now be managed by the DE Master team.

DE Master Blenders’ is led by former Reckitt Benckiser chief executive Bart Becht and made a splash in the coffee sector last year when it bought Douwe Egberts for about €7.5 billion.

The coffee deal will leave Mondelēz free to concentrate on its snacks business which includes Oreo cookies and Cadbury chocolate and 85 per cent of net sales will come from snacks after the deal completes - a move which will please activist investor Nelson Peltz.

Peltz’s Trian Fund Management built a stake in Mondelēz and has been agitating for change. He demanded better growth, cost-cutting and improved returns for shareholders.

Mondelēz, which split from Kraft in 2012, gave Mr Peltz a seat on its board in January. It revealed a cost cutting plan along with its first quarter results and said it plans cost savings of at least $1.5bn by 2018.