Nestle to pay starbucks $7 15 bn for rights to sell its products worldwide

Nestle to pay Starbucks $7.15 bn for rights to sell its products worldwide While Starbucks holds the crown in the $13.8 billion US coffee market, Nescafe and Nespresso hold the top ranks globally, according to Euromonitor

Nestle SA and Starbucks Corp. are joining forces to rejuvenate their coffee empires.Nestle will pay the Seattle-based chain $7.15 billion upfront in cash for the rights to sell Starbucks coffee products in retail and food-service channels, the companies said Monday. Nestle will use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year.The deal is Nestle’s first tie-up with a major rival in coffee. Nestle expects the deal to contribute positively to its earnings per share and organic growth targets from 2019. The business has annual sales of $2 billion. Starbucks said it will use the proceeds to accelerate share buybacks, now expecting to return about $20 billion through repurchases and dividends through fiscal 2020.

The alliance underlines Nestle’s efforts to capture more upscale java drinkers in the US, where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co. The investment company of Europe’s billionaire Reimann family has spent more than $30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet’s.“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. “It allows Nestle to gain scale in the US, a weak spot so far.”Starbucks said Nestle will also obtain the rights to sell packaged coffee products under brands including Seattle’s Best Coffee, Starbucks VIA and Torrefazione Italia. The deal also the includes Teavana tea brand, though it excludes ready-to-drink products and all sales within Starbucks coffee shops.

“With Starbucks, Nescafe and Nespresso, we bring together three iconic brands in the world of coffee,” Nestle Chief Executive Officer Mark Schneider said in the statement. The deal is Nestle’s largest since he began leading the company last year.About 500 Starbucks employees will join Nestle. Operations will continue to be located in Seattle. The agreement is subject to customary regulatory approval and is expected to close by the end of 2018.

While Starbucks holds the crown in the $13.8 billion US coffee market, Nescafe and Nespresso hold the top ranks globally, according to Euromonitor. Starbucks has been examining each of its businesses to streamline its operations and focus on those that add most to sales and profit, Chief Financial Officer Scott Maw said on a conference call in January.Nestle added niche brands Blue Bottle Coffee and Chameleon Cold-Brew last year to expand its portfolio in the U.S. Nespresso also introduced a machine that’s more attuned to Americans’ preference for bigger cups of joe several years ago.Starbucks in November agreed to sell tea brand Tazo to Unilever for $384 million.Nestle said its ongoing share-buyback program will remain unchanged.