News

Nestle paying Starbucks $7B to form coffee alliance

May 8, 2018

Starbucks Corporation is forming a global coffee alliance with Nestle S.A. to accelerate and grow the global reach of its brands in consumer packaged goods and foodservice, according to a company press release.

As part of the alliance, Nestle 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. Nestle 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 Nestle's single-serve capsule systems.

"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 ," Kevin Johnson, Starbucks president and chief executive officer, said in the release. 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."

Mark Schneider, CEO of Nestle, called the transaction a significant step for Nestle's coffee business.

"With Starbucks, Nescafe and Nespresso we bring together three iconic brands in the world of coffee," he said. "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."

This global alliance combines the strength and affinity of the Starbucks brand with the global reach of Nestle and its iconic coffee brands, creating new growth opportunities in the established North American markets and unlocking expansion in international markets, according to the release. In the United States, it also enhances Nestle's retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single-serve with Starbucks strong 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 to deliver its coffee products to a variety of markets.

Starbucks intends to use the after-tax proceeds from this upfront 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. Additionally, the transaction is expected to be earnings-per-share accretive by the end of fiscal year 2021, or sooner, with no change to the company's currently stated long-term financial targets, according to the release.

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.