Starbucks Corp and Green Mountain Coffee Roasters are in partnership negotiations, a source close to the talks told Reuters on Monday, sending Green Mountain shares surging.

Starbucks, the world's biggest coffee chain, wants to be a big player in the new and fast-growing single-serve coffee segment that Green Mountain currently dominates with its Keurig one-cup brewers.

Starbucks on Sunday said it planned to announce a new product for the single-cup coffee market in the near future, reviving speculation of a tie-up between the two companies.

The person close to the partnership talks would not say if the pending announcement would involve Green Mountain.

A Starbucks spokesman declined comment on the negotiations. Before news of the talks broke, Green Mountain spokeswoman Suzanne DuLong said the company had no comment on speculations around potential partnerships.

Green Mountain shares surged as much as 13.5 percent to a new lifetime high of $47.81 before backtracking. Shares, which were briefly halted after Reuters reported the talks, closed up 6.7 percent to $46.35.

Shares of Starbucks rose 0.7 percent to $33.58.

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Canaccord Genuity analyst Scott Van Winkle said: Keurig is the dominant brand in single-serve coffee with rapidly rising consumer adoption of its brewers seeding a market opportunity that Starbucks can't resist.

On Sunday, Starbucks said it wants to keep all its options open, including partnerships with other firms, extensions to its Via instant coffee line or even selling single-cup brewing machines.

The news came as Starbucks prepares for the March 1 termination of an agreement by which it provides coffee discs for Kraft Foods Inc's Tassimo one-cup home brewer. Starbucks is also ending its grocery distribution agreement with Kraft on March 1.

Green Mountain enjoys a near monopoly in the single-cup coffee sector -- with more than 80 percent market share -- and has hammered competition from bigger companies such as Kraft and Sara Lee, which sells the Senseo brewer.

JPMorgan analyst John Ivankoe said in a December note to clients that a single-cup product could easily be a $1 billion revenue opportunity for Starbucks in the U.S. alone.

(Editing by Bernard Orr)

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