Up 21% after hours yesterday and finishing today almost 24% from yesterday’s close, it certainly seems that Green Mountain Coffee Rosters isn’t the dark and gloomy picture that David Einhorn painted in his 110 slide presentation released on October 17th of last year (presentation here).  To his credit, he makes some strong points as to GMCRs difficulties with free cash flow.  However, with several important patents on the K-cup design expiring this year, the company is defensively spending money to acquire competitors and protect the market share.  This is in conjunction with large scale research and design efforts to roll out new and improved K-cup designs with fresh patents.  Einhorn’s assessments of the patent issue are as follows. GMCR can:

  • Overpay to buy their licenses back via acquisitions
  • Partner with other coffee brands
  • Attempt to patent minor improvements to the K-cup
  • Introduce a new brewer that uses a different patented portion pack

Seems a bit oversimplified.  Not to mention Einhorn all but suggesting wrongdoing by management as the source of free cash flow issues.  Judgements aside, Greenlight Capital spoke and the markets listened.  And Einhorn took yet another short sell to the bank.