Nestle Set to Pays Starbucks $7.15bn For Rights to Sell Cafe Chain’s Coffee

Today, Nestle, the Swiss food giant, announced that it is set to pay Starbucks $7.15bn (£5.3bn) for the acquisition of the rights to sell the coffee of the cafe chain outside of its shops.

The said deal grants Nestle “perpetual rights” to market the products of Starbucks worldwide outside of the own network of the company, with the US market cited as an area of concentration.

Nestle is already the owner of major coffee brands Nespresso and Nescafe. However, it has struggled to win market share in the extensive American market.

This year, Nestle withdrew from the confectionery business in the United States, even though in the first-quarter update of the company that was issued in April, it said that its US arm had “returned to growth. Last year, Nestle said that “soft consumer demand and challenging category dynamics” had affected growth.

The head of European consumer equities at Kepler Cheuvreux, Jon Cox, said that the deal will be “positive” for the company, continuing the strategy of Mark Schneider, the new chief executive, of securing “bolt-on acquisitions in key growth areas.”

He added: “Nestle is underrepresented in coffee in North America, while we expect it to use its sales platform to accelerate sales of Starbucks products elsewhere in the world.”

The shares of Nestle that are traded in Zurich increased by 1.57 percent today.

The Starbucks branded business generates revenues amounting to $2bn annually, with Nestle saying that the deal will contribute to earnings from next year onwards. Both the companies said that they expect that the deal will be closed by the end of this year, subject to the approval of the regulators.

Approximately 500 employees of Starbucks will move to Nestle as a part of the deal, even though they will remain to be based in Seattle, where the first shop of Starbucks was opened way back in 1971 and where the headquarters of the company is based. Nestle did not disclose any job losses or synergies from the merged operations.

The statement of Nestle said that the companies will continue to work together on “innovation and go-to-market strategies.”

The president and chief executive of Starbucks, Kevin Johnson, stated: “This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle.”