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    Nestlé to Pay Starbucks $7.15 Billion in 'Historic Deal'

  • Nestlé will bring Starbucks' packaged coffee into regional markets globally as part of the coffee alliance.

    Starbucks
    Starbucks is on target to open 2,300 net new units globally in fiscal 2018.

    With the intention of bringing “Starbucks experiences to the homes of millions more around the world,” the coffee chain is forming a “global coffee alliance” with Nestlé S.A. In the “alliance,” Nestlé is obtaining the rights to market, sell, and distribute Starbucks, Seattle’s Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA, and Torrefazione Italia packaged coffee and tea in all global at-home and away-from-home channels. Nestlé is paying Starbucks $7.15 billion in closing consideration, and Starbucks, with a focus on long-term shareholder value creation, it said, will retain a significant stake as a licensor and supplier of roast and ground and other products.

    Starbucks’ brand portfolio will also be represented on Nestlé’s single-serve capsule systems. The deal is expected to close summer or early fall, and excludes ready-to-drink coffee, tea, and juice products.

    “This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values,” Starbucks chief executive officer Kevin Johnson said in a statement.

    The deal is expected to grow and accelerate the global reach of Starbucks’ brands in consumer-packaged goods and foodservice, the company said.

    “This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” Mark Schneider, CEO, Nestlé, said in a statement. “With Starbucks, Nescafé, and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world.”

    As part of the perpetual global license agreement, Starbucks said it would lead in sourcing, roasting, and global brand management for the alliance. The two companies plan to work together on innovation and go-to-market strategies.

    Starbucks said the alliance would leverage Nestlé’s global reach as a CPG supplier while promoting its brand positing around the world, creating “creating new growth opportunities in the established North American markets and unlocking expansion in international markets. In the United States, it also enhances Nestlé’s retail and Foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks strong presence in K-cup pods,” the company said.

    Starbucks added that it intends to use the after-tax proceeds from the up-front payment to accelerate share buybacks and now expects to return about $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal 2020. Additionally, the transaction is expected to be earnings per share accretive by the end of fiscal year 2021 or sooner. No effect is expected for Starbucks’ long-term financial targets.

    The coffee giant reported same-store sales gains of 2 percent for the U.S.-heavy Americas region in Q2. Starbucks is on target to open 2,300 net new units globally in fiscal 2018. Starbucks reported consolidated net revenues of $6 billion, up 14 percent over the prior year, in Q2. Starbucks' quarterly net income was $660 million, or 47 cents per share, compared with $653 million, or 45 cents per share, a year ago.

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