Starbucks (SBUX) announced it will form a global coffee alliance with Nestle (NSRGY) to “accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods and Food service.” It added, “With a shared commitment to ethical and sustainable sourcing of coffee, this alliance will transform, expand and elevate both the at-home and away-from-home coffee and related categories around the world.” As part of the alliance, Nestle will obtain the rights to market, sell, and distribute Starbucks, Seattle's Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia packaged coffee and tea in all global at-home and away-from-home channels.
Nestle will pay Starbucks $7.15B in closing consideration, and Starbucks “will retain a significant stake as licensor and supplier of roast and ground and other products going forward.” Additionally, the Starbucks brand portfolio will be represented on Nestle's single-serve capsule systems. The agreement is subject to customary regulatory approval and is expected to close this summer or early fall. The agreement excludes ready-to-drink coffee, tea, and juice products. Starbucks intends to use the after-tax proceeds from the up-front payment primarily to accelerate share buybacks and now expects to return approximately $20B in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020.
Additionally, the transaction is expected to be earnings per share accretive by the end of fiscal year 2021 or sooner, with no change to the company's currently stated long-term financial targets.
