May 7, 2018
Nestle pays $7.2 billion to sell coffee with Starbucks brand
Starbucks and Nestle announced they will form a global coffee alliance to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods (CPG) and Foodservice.
Nestle and Starbucks are joining forces to rejuvenate their coffee empires.
The Swiss maker of Nescafe will pay the Seattle-based chain $7.15 billion upfront in cash for the rights to sell Starbucks coffee products in supermarkets, restaurants and catering operations, the companies said Monday. Nestle will use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year.
The alliance underlines Nestle's efforts to capture more upscale java drinkers in the U.S., where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co. The investment company of Europe's billionaire Reimann family has spent more than $30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet's.
"The deal with Starbucks allows Nestle to keep JAB at a distance," Jean-Philippe Bertschy, an analyst at Bank Vontobel, wrote in a note. He added that the price may seem expensive, but the investment may pay off within three to four years. "It allows Nestle to gain scale in the U.S., a weak spot so far."
Nestle shares rose as much as 0.8 percent in early Zurich trading. The stock has dropped about 9 percent this year.
The deal is Nestle's first tie-up with a major rival in coffee. Nestle expects the deal to contribute positively to its earnings per share and organic growth targets from 2019. The business has annual sales of $2 billion, about 9 percent of Starbucks's total revenue. The coffee chain said it will use the proceeds to accelerate share buybacks, now expecting to return about $20 billion through repurchases and dividends through fiscal 2020.
By The Washington Post