Mondelez to merge its coffee brands with Europe’s D.E. Master Blenders

Snack food giant Mondelez International agreed to combine its coffee business with D.E. Master Blenders 1753 to create a new coffee giant, the U.S. company announced Wednesday.

The new company, which would be called Jacobs Douwe Egberts, would join together coffee brands such as Tassimo and Jacobs from Mondelez and Douwe Egberts and Senseo from D.E. Master.

Deerfield, Ill.-based Mondelez would get about $5 billion in cash and a 49% equity stake in the new company. Amsterdam-based D.E. Master will hold a majority stake.

Shares of Mondelez jumped after the announcement. Almost midway through the day’s trading session, the stock was changing hands at $37.78, up $2.56, or 7.3%.

Jacobs Douwe Egberts, to be based in the Netherlands, will generate about $7 billion in annual revenue, Mondelez said in a statement.

Irene Rosenfeld, chief executive of Mondelez, said keeping a big stake in the new company would create “substantial value” for shareholders.

“We’ll continue to benefit from the future growth of the coffee category,” she said in the statement.

The deal, which is subject to regulatory approval, is expected to be completed by 2015.

Mondelez, whose pantry of brands includes Oreo, Toblerone and Ritz, has been on a $3.5-billion restructuring program prompted by activist investor Nelson Peltz. The plan is expected to save Mondelez at least $1.5 billion by 2018.

Mondelez also reported Wednesday a sharp drop in first-quarter profit and cut its forecast for full-year revenue growth amid competition from cheaper coffee offerings.

For the three months ended March 31, the company earned $163 million, or 9 cents a share. That is down nearly 70% from the $536 million, or 30 cents a share, in the same period a year earlier. Revenue fell 1.2% to $8.6 billion.