Fast-growing Delta Corp., a U.K. logistics business, will merge with Coffee Holding Co. to diversify its operations.
Coffee roaster and green bean wholesaler Coffee Holding Co., Inc. (Nasdaq: JVA) will be bought by Delta Corp Holdings Limited, a logistics company, in a merger creating a public company with a pro forma value of $655 million.
Coffee Holding, based in Staten Island, New York, was founded in 1972 and has been publicly listed since 2005. It sells wholesale green coffee, private label coffee, and branded coffee. The company is led by president and CEO Andrew Gordon.
With a market capitalization of about $14 million as of October, Coffee Holding reported approximately $63.92 million in net sales and $16 million in gross profit for fiscal year 2021. In the third quarter of 2022, Gordon pointed to logistics and transportation costs as headwinds affecting the company’s profitability
Delta, based in London, is a much younger company with a broader business model. It was founded in 2019 as a global logistics provider. The private company operates as a supply chain platform that provides bulk logistics, energy logistics, and asset management. The company had $532 million in revenue and $45 million in net income for fiscal year 2021. Mudit Paliwal serves as CEO.
The transaction will create a new holding company, Pubco, under which Delta and Coffee Holding will operate as wholly owned subsidiaries. The new company will operate under Paliwal, while Gordon will continue to lead the Coffee Holding subsidiary.
“The Delta team has a successful track record building global business, offering our shareholders a unique opportunity and potential for additional returns. I am confident that Coffee Holding’s employees, customers, and shareholders will enjoy the many potential benefits of this partnership,” Gordon said in the press release announcing the merger.
Under the terms of the transaction, Coffee Holdings shareholders will receive one share of Pubco for each one of their current shares of the wholesale coffee company. Delta shareholders will receive $625 million in Pubco shares in exchange for their current shares of Delta, subject to adjustments.
Although Delta saw triple-digit spikes in revenues and profits in 2021, this year might pose challenges. The shipping market is undergoing a slowdown in demand, oversupply of containers, and pandemic-related supply chain disruptions, according to the American Journal of Transportation. A writer for stock investment website Seeking Alpha recently predicted that Delta might see a decline in net income this year compared to 2021.
Delta operates under an asset-light business model, which the company claims reduces risk and differentiates it from competitors. Its acquisition of Coffee Holding is meant to diversify its operations and provide synergies with its existing core businesses. “This includes a broadening of our energy transition, sustainability, and environmental stewardship-related service offerings,” Paliwal explained in the press release.
The transaction is expected to close in the first quarter of 2023. The combined entity will trade on Nasdaq under the ticker symbol “DLOG.”