Swiss-based Nestle, the world's largest food and beverage company, will pay Starbucks $7.15 billion in cash for exclusive rights to sell the US chain's packaged coffees and teas around the world, tying a premium brand to Nestle's global distribution muscle.
The agreement announced yesterday could rev up Starbucks' roughly $2 billion business selling packaged Starbucks coffee, Teavana tea and other products through grocery stores and other retailers, including in China.
The alliance, which amounts to a licensing arrangement, frees Seattle-based Starbucks to focus on improving its mainstay US cafe business, where traffic growth has stalled amid competition from fast-food chains and upscale coffee houses, while rapidly adding shops in China.
Starbucks will use proceeds to increase planned stock buybacks to $20 billion from $15 billion through fiscal 2020. It said the deal would add to earnings per share by 2021.
The agreement also includes Starbucks-branded capsules for Nestle's Nespresso and Dolce Gusto single-serve brewers, which should help Nestle curb sales of alternatives from other providers.
Nestle expects the alliance to add to its earnings by 2019. It did not alter share buyback plans.
In addition to the cash payment, Starbucks will receive revenue from product sales and royalties.
"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, calling the arrangement a brand amplifier.
Nestle CEO Mark Schneider has made coffee a strategic priority as he tries to convince uneasy shareholders, including activist Third Point, that he can boost the sprawling group's performance.
"This is all about growth," Mr Schneider told analysts.
He said he expects the alliance to boost Nestle in North America and benefit Starbucks in China, which is Nestle's second largest market.
