Starbucks Corporation (SBUX) purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related equipment primarily through its company-operated retail stores. In addition to sales through its company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The company’s objective is to establish Starbucks as the most recognized and respected brand in the world.
Big news in the world of coffee today as it was announced that Nestle is buying the rights to Starbucks’ retail marketing and sales business for $7 billion. This global coffee alliance will allow Nestle to 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.
Kevin Johnson, president and chief executive officer, Starbucks, said that:
This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé. This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values.
The sale will provide Starbucks with a big cash infusion, and that cash may help investors. Starbucks intends to use the after-tax proceeds from this up-front payment primarily to accelerate share buybacks and now expects to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through the fiscal year 2020. Additionally, the transaction is expected to be earnings per share (EPS) accretive by the end of the fiscal year 2021 or sooner, with no change to the company’s currently stated long-term financial targets.
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