(RTTNews) - Peet's Coffee & Tea Inc.(PEET: News ) said Monday that the company entered into a definitive agreement with Diedrich Coffee, Inc. (DDRX: News ), a wholesale coffee roaster and distributor, to acquire Diedrich in a cash-and-stock transaction valued at $26.00 per share or about $213 million. Peet's expects the acquisition to strengthen its position in the specialty coffee and tea market, with entry into the rapidly growing single cup coffee market.

Diedrich focuses on the production and sale of K-Cups for Keurig Inc.'s single-cup brewing system through a license with Keurig. As a part of the transaction, Peet's will acquire Diedrich's portfolio of brands including Diedrich Coffee, Coffee People and the single serve rights to Gloria Jean's coffee brand. Peet's will also buy Diedrich's roasting and packaging facility capable of roasting and packaging unflavored and flavored coffees, with significant current and future K-Cup production capacity.

The deal is structured as a two-step transaction consisting of an exchange offer for the outstanding shares of Diedrich common stock, followed by a merger of a Peet's subsidiary into Diedrich. For each share of Diedrich common stock tendered and accepted in the exchange offer or converted in the merger, Peet's will pay a combination of $17.33 in cash and a fraction of a share of Peet's common stock having a value of about $8.67, but such fraction will not exceed 0.315 of a share of Peet's common stock.

Outstanding warrants and options to acquire Diedrich common stock will also be converted into the right to receive a combination of cash and shares of Peet's common stock. Upon completion of the second-step merger, Diedrich will become a wholly-owned subsidiary of Peet's.

Diedrich chairman Paul Heeschen and other directors as well as executive officers of Diedrich have signed stockholder agreements in favor of Peet's committing to tender into the exchange offer shares of Diedrich common stock, representing more than 32% of the total outstanding common stock of Diedrich.
The acquisition has been unanimously approved by the board of directors of both companies. Peet's will finance the deal through a combination of cash on hand at both companies and $140 million of committed debt financing. The acquisition is expected to be dilutive to earnings in 2010 and accretive thereafter. The exchange offer is currently expected to close by the end of 2009.

According to Patrick O'Dea, President and CEO of Peet's, "The Diedrich acquisition represents another major strategic growth initiative for our consumer packaged coffee business, by entering and driving adoption of the single cup segment through Diedrich's high-growth K-Cup business.''

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