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Keurig soars to record after deal to bring Kraft coffees to machines

A Keurig coffee machine is seen in this file photo.

Keurig Green Mountain Inc. shares surged to a record high after announcing a deal to bring Kraft Foods Group Inc. coffee brands such as Maxwell House, Yuban and McCafe to its home brewing system.

Kraft will offer its coffees in portion packs for Keurig machines as part of a multi-year licensing, manufacturing and distribution pact, according to a statement today. That includes K-Cup packs, which make single cups of coffee, as well as the K-Carafes and Bolt packs for larger portions.

The move brings another high-profile partner to Keurig, which also is working with Coca-Cola Co. on a system for producing cold beverages. In February, Coca-Cola bought 16.7 million newly issued shares in Keurig for about $1.25-billion (U.S.). The beverage giant announced that it was increasing its stake to 16 per cent in May, making it Keurig's largest shareholder.

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The Kraft agreement helps Keurig by giving it the biggest family of coffee brands that isn't already on its system, Mark Astrachan, an analyst at Stifel Financial Corp. in New York, said in a research note.

Keurig jumped 13 per cent to $133.36 in New York, marking the biggest intraday gain since May. Shares of the Waterbury, Vermont-based company climbed 77 per cent this year, while the Standard & Poor's 500 Index has advanced 7.6 per cent.

"Adding Kraft's celebrated brands to the licensed Keurig family means Keurig consumers will be able to enjoy even more beverages they know and love with the quality and consistency they expect from their Keurig brewer," Keurig Chief Executive Officer Brian Kelley said in today's statement.

Manufacturing agreement

The Kraft-branded Keurig packs will begin appearing in the fall, with both companies initially making them. Eventually, Keurig plans to take over manufacturing of the packs, with Kraft supplying and roasting the coffee.

The agreement also covers Kraft's Swedish-inspired Gevalia coffee. Its McCafe product is part of a collaboration with McDonald's Corp., with the two companies jointly marketing the brand and selling it at grocery stores nationwide.

Kraft Foods, based in Northfield, Ill., broke off from Mondelez International Inc. in 2012, taking the North American grocery business and brands such as Kool-Aid and Velveeta. Mondelez is focused on snacks, including Oreo and Wheat Thins, which it sells globally.

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Keurig, which changed its name from Green Mountain Coffee Roasters Inc. in March, has been seen as a takeover candidate for at least three years, in part because of its rapid growth. The Coca-Cola investment could be a precursor to an eventual acquisition of Keurig, Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co., said earlier this year.

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