Nestle to pay $7.15 billion to Starbucks in coffee tie-up

Finance


A company source said it would pay market-linked royalties to Starbucks after the initial fee. It will not buy any industrial assets as part of the deal.

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

The agreement will strengthen Nestle’s position in the United States, where it is only the No. 5 player with less than 5 percent of the market. Market leader Starbucks itself only has a 14 percent share, according to Euromonitor International.

“Nestle is far and away the largest hot drinks company globally, with more in sales than the next five largest hot drinks companies combined,” Matthew Barry, an analyst at Euromonitor said on Friday when the tie-up was first mooted.

“However, Nestle’s leadership position is less secure than it once was.”

Other big players are growing as well, including Italy’s Lavazza, which is now the world’s No. 3.

Nestle’s new Chief Executive Mark Schneider last year identified coffee as a strategic area for investment for the company known for Nescafe instant coffee and Nespresso home espresso brewers.

It bought Texas-based Chameleon Cold-Brew in November and took a majority stake in Blue Bottle Coffee, a small upscale cafe chain, in September.

The company is under shareholder pressure to improve its performance, which has suffered for years as consumers migrate to fresher brands.

Starbucks, which in April reported a global drop in quarterly traffic to its established cafes, has been revamping its business as it battles high and low-end competition in its key home market. It sold its Tazo tea brand to Unilever for $384 million and closed underperforming Teavana retail stores.



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