Nestle to pay $7.2B to sell Starbucks coffee
london/zurich — Swiss-based food giant Nestle will pay Starbucks $7.15 billion in cash for the rights to sell the US coffee chain’s products around the world in a global alliance aimed at reinvigorating their coffee empires.
The deal on Monday for a business with $2 billion in sales reinforces Nestle’s position as the world’s biggest coffee company tries to fortify its place atop a fastchanging market.
Bernstein analyst Andrew Wood said that Nestle’s third-biggest acquisition would allow the Swiss company to expand the brand through its global distribution network.
Nestle shares rose 0.5 per cent in early trading, having fallen by more than 8 per cent so far this year.
Seattle-based Starbucks, the world’s biggest coffee chain, said it will use proceeds to speed-up share buybacks and the deal would add to earnings per share (EPS) by 2021 at the latest.
Nestle said it expects the deal to sell Starbucks bagged coffee and drinks adding to earnings by 2019. It will not involve any of Starbucks’ cafes, but does let Nestle sell Starbucks coffee in individual pods and expand sales of soluble coffee.
The Nestle name will not appear on Starbucks products. “We do not want the consumer to perceive that Starbucks is now part of a bigger family,” a Nestle source said.
Starbucks, strong mostly in the United States, will have the final say on expanding its product range.
“This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle,” said Starbucks chief executive Kevin Johnson.
Nestle and Starbucks are joining forces in a highly fragmented consumer drinks category that has seen a string of deals lately.
JAB Holdings, the private investment firm of Europe’s billionaire Reimann family, has fueled the consolidation wave with a series of deals including Douwe Egberts, Peet’s Coffee & Tea and Keurig Green Mountain, narrowing the gap with Nestle.
Coffee is popular with younger customers who have grown up with Starbucks. A willingness to pay up for exotic beans and specialty drinks means companies can brew up richer profit margins than in mainstream packaged food.
Starbucks said it now expects to return approximately $20 billion in cash to shareholders in share buybacks and dividends through fiscal year 2020.
It said the transaction was expected to add to earnings per share by the end of fiscal year 2021 or sooner, with no change to the company’s currently stated long-term financial targets. — Reuters