LONDON/ZURICH (Reuters) - Swiss-based food giant Nestle will pay Starbucks $7.15 billion in cash for the rights to sell the U.S. coffee chain’s products around the world, tying a premium brand to Nestle’s global distribution muscle.
The deal on Monday for a business with $2 billion in sales reinforces Nestle’s position as the world’s biggest coffee company tries to fortify its place atop a fast-changing market.
It is a bold stroke by new Nestle Chief Executive Mark Schneider, who 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.
Bernstein analyst Andrew Wood said that Nestle’s third-biggest acquisition would allow the Swiss company to expand the brand through its global distribution network.
Nestle shares rose 1.4 percent by mid-session, having fallen by more than 8 percent so far this year. Starbucks stock was indicated 2.8 percent higher.(Nestle and Starbucks shares: reut.rs/2If7WvF)
Seattle-based Starbucks, the world’s biggest coffee chain, said it will use proceeds to speed share buybacks and the deal would add to earnings per share (EPS) by 2021 at the latest.
Nestle said it expects the deal to sell Starbucks bagged coffee and drinks adding to earnings by 2019. It will not involve any of Starbucks’ cafes or ready-to-drink products.
But it does let Nestle sell Starbucks coffee in individual pods — as it does now with Nespresso and Nescafe — and expand sales of Starbucks soluble coffee, a key market in Asia. Starbucks now sells single-serve coffee in Kuerig K-cup pods.
The Nestle name will not appear