More Less
Nestle Will Pay $7.15 Billion To Sell Starbucks Coffee

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 largest coffee company tries to fortify its place atop a fast-changing market.

Bernstein analyst Andrew Wood said that Nestle’s third-largest 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.

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 Keurig K-cup pods.