Nestlé to pay $7.15 b to Starbucks in coffee tie-up

Tuesday, 8 May 2018 00:27 - - {{hitsCtrl.values.hits}}

Zurich (Reuters): Nestlé will pay Starbucks $7.15 billion as part of a global coffee alliance in which the Swiss-based food giant is getting the rights to market the US coffee company’s products around the world outside Starbucks’ coffee shops.

Starbucks said yesterday it will use proceeds to speed-up share buybacks and the deal would add to earnings per share (EPS) by 2021 at the latest. Nestlé saw the deal adding to earnings by 2019.

Nestlé and Starbucks are joining forces in a highly fragmented consumer drinks category that has seen a string of deals lately.

JAB Holdings, the private investment firm of Europe’s billionaire Reimann family, has fuelled the consolidation wave with a series of deals including DouweEgberts, Peet’s Coffee & Tea and Keurig Green Mountain, narrowing the gap with Nestlé.

“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 Starbucks Chief Executive Kevin Johnson.

Coffee is popular with millennials who have grown up with Starbucks and often seek out smaller brands. A willingness to pay up for exotic beans and specialty drinks means companies can brew up richer profit margins than in mainstream packaged food.

Starbucks plans to use the proceeds to accelerate share buybacks and now expects to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020, it said.

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.

In a separate statement, Nestlé said it expected the business to contribute positively to its earnings per share and organic growth targets from 2019.

Nestlé, which will take on about 500 Starbucks employees as part of the deal, says its ongoing share buyback program would remain unchanged.