Nestle to pay Starbucks $7.15 bn for rights to sell the US chain's products globally
07 May 2018
Nestle SA, the world's largest food and beverage company today announced that it will pay US coffee house chain Starbucks Corporation $7.15 billion in cash for the rights to sell Starbucks consumer and foodservice products globally, outside of the company’s coffee shops.
The Switzerland-based giant said that the deal provides it with a strong platform for continued growth in North America with leadership positions in the premium roast and ground and portioned coffee businesses.
It also allows Nestlé to capture new growth opportunities in the rest of the world with Starbucks' premium products.
"This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé,” said Kevin Johnson, president and CEO, Starbucks.
"This historic deal is part of our ongoing efforts to focus and evolve our business to meet the changing consumer needs, and we are proud to work alongside a company that is committed to our shared values,” he added.
As part of the deal, Starbucks will receive an up-front cash payment of $7.15 billion for a business which generated annual sales of $2 billion.
The transaction does not include the transfer of any fixed assets. Nestlé expects this business to contribute positively to its earnings per share and organic growth targets as from 2019.
The agreement excludes ready-to-drink products and all sales of any products within Starbucks coffee shops.
Starbucks said it now expects to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020.
Nestle is the 5th largest player, holding a little less than 5 per cent of the US market share, while Starbucks is a market leader with 14 per cent share, according to market intelligence provider Euromonitor International.
Nestlé, which owns Nespresso, a direct rival in the US to Starbucks's retail coffee bean business, is targeting coffee as a future high-growth market, especially the US market.
In September last year, the Swiss company expanded its portfolio of US coffee businesses by buying a majority stake in California-based coffee roaster and retailer Blue Bottle Coffee and a month later went to acquire Texas-based organic “cold brew” producer, Chameleon Cold-Brew, for an undisclosed sum.
Nestle has become an expert in cutting deal with rivals in order to gain market share. It sells General Mills’ Haagen-Dazs brand in the US, while US chocolate giant Hershey sells Nestle’s KitKat in the US. Nestle also has joint ventures with General Mills for cereal, Lactalis for dairy products and R&R for ice cream.
Nestlé said that its ongoing share-buyback program will remain unchanged.
Around 500 Starbucks employees will join Nestlé to drive the existing business and global expansion. Operations will continue to be located in Seattle.
The agreement is expected to close by the end of 2018.