May 7, 2018 – Yesterday, it was announced that Nestle – the world’s largest food and beverage company – had reached a deal in principle to acquire the exclusive rights to sell Starbucks brand packaged coffees and teas around the world.
The Deal Points
Pending regulatory approval Nestle will pay $7.15 billion to acquire the exclusive rights to sell Starbucks brand re-packaged products anywhere in the world outside of Starbuck’s stores. According to the company release, the business currently generates $2 billion in annually sales for Starbucks. While the arrangement calls for Nestle to hire a reported 500 Starbucks employees, the transaction does not include the transfer of any fixed assets.
Wall Street Reacts
Markets Monday had mixed reactions to the news, – seeing Starbuck’s stock fall 0.4% to $57.45, while Nestle’s rose 1.4% to $77.35. According to sources, Starbucks had initially planned to buyback $15 billion of its own stock through the end of fiscal year 2020, but now as a result of the deal, that number has risen to a reported $20 billion.
A Good Deal for Starbucks
Essentially the deal amounts to a licensing agreement for Starbucks. Starbucks products will be sold by a company with a truly global reach in exchange for an enormously successful brand. According to Starbucks president and CEO Kevin Johnson, in an interview with CNBC this morning Johnson referred to the deal as, ‘the definitive global coffee alliance in the industry.’ Johnson went on to further state about the expansion into consumer products, ‘We’ve proven that when we extend into CPG (consumer products) and food services, it becomes a grand amplifier… This is all about growth.’
A Smart Move for Nestle
The move is the latest effort by Nestle CEO Mark Schnieder to boost the company’s slowing performance globally. After sales last year rose at their slowest rate in the last twenty years, Schneider has clearly identified coffee a strategic priority for Nestle. Currently, Nestle accounts for just 3% of the U.S. coffee market, compared to Starbuck’s 15%. In the company release, Shneider remarked, ‘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.’
All-in-all, the deal appears to be a win-win for both companies. Starbucks continues to expand while simultaneously maintaining its philanthropic culture, and Nestle acquires the rights to market a great product. If approved, the deal is expected to be finalized in late summer or earlier fall of this year.