Last updated on May 8th, 2018
Starbucks Corp. is forming a “global coffee alliance” with Nestlé S.A. in an effort to accelerate and grow the global reach of Starbucks brands in the consumer packaged goods and foodservice categories.
Nestlé will obtain 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 will pay Starbucks $7.15 billion in closing consideration, and Starbucks—with a focus on long-term shareholder value creation—will retain a significant stake as licensor and supplier of roast and ground and other products going forward. Additionally, the Starbucks brand portfolio will be represented on Nestlé’s single-serve capsule systems.
“With a shared commitment to ethical and sustainable sourcing of coffee, this alliance will transform, expand and elevate both the at-home and away-from-home coffee and related categories around the world,” said Starbucks in a statement.
“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 Kevin Johnson, Starbucks president and CEO. “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.”
“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mark Schneider, CEO of Nestlé. “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.”
Starbucks and Nestlé believe this deal will create new growth opportunities in the established North American markets and unlock expansion in international markets. In the U.S., the companies also hope it will enhance Nestlé’s retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks’ presence in K-cup pods. As part of this perpetual global license agreement, Starbucks will lead in sourcing, roasting and Starbucks global brand management for the alliance, while the two companies will work closely together on innovation and go-to-market strategies.
The agreement is subject to customary regulatory approval and is expected to close this summer or early fall. The agreement excludes ready-to-drink coffee, tea and juice products.
Starbucks intends to use the after-tax proceeds from this up-front payment primarily 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. Starbucks hosted a 30-minute investor conference call led by Kevin Johnson on May 7. A replay of the webcast will be available here until June 6.
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