Green Mountain, Starbucks Expanded Deal Doesn't Change Anything (GMCR) (SBUX)

After getting punched in the jaw by important partner Starbucks (Nasdaq: SBUX) with the introduction of its own single-serve machine, Green Mountain (Nasdaq: GMCR) shares are seeing a sharp relief rally Wednesday amid news the two are getting more cuddly. Or it would appear...

The pair announced an expanded relationship whereby Starbucks' coffee and Tazo tea will be available for the new Keurig Vue Brewer. Starbucks said Keurig is the "exclusive low-pressure (30 psi or under), single cup brewing system of its kind offering fresh-brewed Starbucks® coffee and Tazo® tea."

On the surface it appears the two are just as close as before the Starbucks' single-serve machine news, but that may not be the case. Actually the news doesn't change much.

Starbucks will continue to pursue its Verismo system, which it strategically words as a "high-pressure" single-cup system (notice the wording on Keurig being a “low-pressure” system). The Verismo system, according to Starbucks, will focus on espresso drinks.

Meanwhile the installed base of Keurig will be eagerly waiting for Green Mountain's patent on the K-Cup to expire later in the year. Once the patents expire private label or other coffee manufacturers will be allowed to market and sell new copy-cat portion packs to be used in the installed base of Keurig single-cup brewers.

Some analyst see today's news a different way.

Analysts at Roth Capital said the news discounts the view by Green Mountain bears that the Verismo brewer platform would compete directly against Green Mountain's Keurig. Keybanc's analyst also echoed this view, noting the announcement "validates our view that Verismo does not compete with the K-cup or Vue systems."

While analysts may be right in their view Starbucks’ Verismo system doesn’t compete with Green Mountain’s Keurig, investors need to ask themselves: If Verismo wasn’t meant to compete then why would the system even make coffee? Most traditional espresso machines currently on the market are strictly for espresso -- not a regular cup of joe.

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