Nestle makes $7B bet on Starbucks
Nestle is paying Starbucks $7.15 billion in cash for the rights to sell the U.S. coffee chain’s products around the world.
Seattle-based Starbucks, the world’s biggest coffee chain, said it will use proceeds to speed 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 or ready-to-drink products.
But it does let Nestle sell Starbucks coffee in individual pods — as it does now with Nespresso and Nescafe — and expand sales of Starbucks soluble coffee, a key market in Asia. Starbucks now sells single-serve coffee in Kuerig K-cup pods.
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.
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.
Nestle said it expected the business to contribute positively to earnings per share and organic growth targets from 2019.