Nestle paying $9.6b to market Starbucks' products globally

Starbucks coffee packs on sale in New York. Nestle and Starbucks are joining forces in a highly fragmented consumer drinks category.
Starbucks coffee packs on sale in New York. Nestle and Starbucks are joining forces in a highly fragmented consumer drinks category.PHOTO: REUTERS

ZURICH • Nestle will pay Starbucks US$7.15 billion (S$9.6 billion) as part of a global coffee alliance in which the Swiss-based food giant is getting the rights to market the US coffee company's products around the world outside Starbucks' coffee shops.

Starbucks said yesterday that it will use the proceeds to speed up share buybacks and the deal would add to earnings per share by 2021 at the latest. Nestle saw the deal adding to earnings by next year.

Nestle and Starbucks are joining forces in a highly fragmented consumer drinks category that has seen a string of deals lately.

JAB Holdings, the private investment firm of Europe's billionaire Reimann family, has fuelled the consolidation wave with a series of deals, including Douwe Egberts, Peet's Coffee & Tea and Keurig Green Mountain, narrowing the gap with Nestle.

"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.

Coffee is popular with millennials who have grown up with Starbucks and often seek out smaller brands. A willingness to pay for exotic beans and speciality drinks means companies can brew up richer profit margins than in mainstream packaged food.

Starbucks plans to use the proceeds to accelerate share buybacks and now expects to return approximately US$20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020, it said.

The United States coffee company said the transaction was expected to add to earnings per share by the end of fiscal year 2021 or sooner, with no change to the company's currently stated long-term financial targets.

In a separate statement, Nestle said it expected the business to contribute positively to its earnings per share and organic growth targets from next year.

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

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 08, 2018, with the headline 'Nestle paying $9.6b to market Starbucks' products globally'. Print Edition | Subscribe