Nestlé to pay Starbucks 7 billion dollars in global coffee alliance | Progresiv
Swiss-based food giant Nestlé will pay Starbucks 7.15 billion dollars in cash for the rights to sell the U.S. coffee chain's products around the world, tying a premium brand to Nestlé's global distribution muscle. 
The deal for a business with 2 billion dollars in sales reinforces Nestlé'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 Nestlé 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 Nestlé's third-biggest acquisition would allow the Swiss company to expand the brand through its global distribution network.
Nestlé 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.
Nestlé 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 Nestlé 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 Nestlé 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 Nestlé source said.
Starbucks, strong mostly in the United States, will have the final say on expanding its product range.
Nestlé said it expected the business to contribute positively to earnings per share and organic growth targets from 2019.
The company source said it would also pay market-linked royalties to Starbucks. It will not buy any industrial assets as part of the deal, but could step in to produce in markets where Starbucks is not present.
Nestlé, which will take on about 500 Starbucks employees, said its ongoing share buyback program remained unchanged.
The agreement will strengthen Nestlé's position in the United States, where it is the No. 5 player with less than 5 percent of the market. Market leader Starbucks has a 14 percent share, according to Euromonitor International. (www.esmmagazine.com)
