BANGALORE, Nov 3 (Reuters) - Shares of Peet's Coffee & Tea Inc PEET.O rose as much as 15 percent to touch a life-high Tuesday, a day after the gourmet coffee chain said it would buy Diedrich Coffee Inc DDRX.O to enter the single-cup coffee market.
The Northern California-based company, which is a smaller rival to Starbucks Corp (SBUX.O) will now compete directly with Green Mountain Coffee Roasters Inc GMCR.O in the single-cup space, a rapidly growing segment within the coffee market. [ID:nBNG501136]
"With popularity growing for single serve coffee systems, investors have long pressed Peet on its plans within the category," Oppenheimer analyst Matthew DiFrisco said in a note.
Peet had been stating that the technology did not meet its standards for taste and freshness, the analyst said, adding that the Diedrich deal "is concerning as near-term share gains appear to be trumping quality."
Anton Brenner, senior research analyst at Roth Capital Partners, said Diedrich is just beginning to enter grocery stores, and would benefit from Peet's distribution capabilities at these stores.
"While the acquisition should boost revenue and profit growth, it is dilutive to 2010 earnings, will likely lower specialty margins and puts Peet in direct competition with brands with greater national appeal," DiFrisco said.
Peet's shares -- which touched a high of $39.66 earlier in the day -- were trading up 12 percent at $38.75 in midday trade on Nasdaq, while Diedrich shares were up 26 percent at $25.74. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Pradeep Kurup)