undergroundnewsroom.com May 27, 2018

Nestlé full of beans after $7bn deal to sell Starbucks coffee

10 May 2018, 02:10 | Gordon Grant

Nestlé Inks Deal to Sell Starbucks Products World-Wide

AFP Nestle pays $7.15 billion to license Starbucks products

The Swiss group is to pay $7.15 billion in cash plus royalties.

"The deal with Starbucks allows Nestle to keep JAB at a distance", Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, wrote in a note.

For Starbucks, the deal will increase its global presence as the company's coffee beans and grounded blends will be sold through Nestle's substantial channels in food retail, such as supermarkets and corner shops.

Under a new alliance between the companies, Nestle will pay the Seattle-based coffee giant $7.15 billion for global rights to market, sell and distribute Starbucks' packaged coffee and tea. But Nestle says the brand makes about $2 billion in sales per year.

Coffee is a growth area for big food and drinks companies, which are trying to offset falling sales as demand for smaller-brand labels grows.

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Starbucks intends to use the after-tax proceeds to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020. It said the deal would add to earnings per share by 2021.

Starbucks has been rapidly expanding its business in China and expects it to become the company's largest market in the future, even as it reported a global drop in April regarding the quarterly traffic it has seen, as it battled both high and low-end traffic at home.

Nestle is turning to a familiar name to boost its coffee sales.

The investment of the European billionaire family Reimann has spent almost $30 billion for building a coffee empire by taking up the assets of companies like Keurig Green Mountain and Peet's.

The agreement only covers Starbucks' packaged goods sold outside the US company's stores. It had been losing ground in the United States confectionery sector as rivals moved towards healthier products. Nestle, which will take on about 500 Starbucks employees, said its ongoing share buyback program would remain unchanged.

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