Swiss-based food giant Nestle will pay Starbucks $7.15 billion in cash for the rights to sell the US coffee chain’s products around the world in a global alliance aimed at reinvigorating their coffee empires.
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, Reuters reported.
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 0.5% in early trading, having fallen by more than 8% so far this year.
Seattle-based Starbucks, the world’s biggest coffee chain, said it will use proceeds to speed-up share buybacks and the deal would add to earnings per share 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, but does let Nestle sell Starbucks coffee in individual pods and expand sales of soluble coffee.
The Nestle name will not appear on Starbucks products. “We do not want the consumer to perceive that Starbucks is now part of a bigger family,” a Nestle source said.
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 fueled the consolidation wave with a series of deals including Douwe Egberts, Peet’s Coffee & Tea and Keurig Green Mountain, narrowing the gap with Nestle.
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