Nestle enters US$7.2b global coffee alliance with Starbucks

ZURICH: Nestle SA agreed to enter a partnership with Starbucks Corp. to market the coffee chain’s consumer and food-service products globally in a first tie-up of major rivals in the java market.

Nestle will pay Starbucks $7.15 billion upfront in cash for a business that has annual sales of $2 billion, the Swiss company said in a statement Monday. Nestle expects the deal to contribute positively to its earnings per share and organic growth targets as from 2019. Nestle’s ongoing share-buyback program will remain unchanged.

The alliance underlines Nestle’s efforts to capture more upscale java drinkers. The maker of Nespresso and Nescafe has been outpaced by JAB Holding Co. in the U.S. The investment company of Europe’s billionaire Reimann family has spent more than $30 billion building its coffee empire with acquisitions, including Keurig Green Mountain and Peet’s.

“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.

Approximately 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. The agreement excludes Ready-to-Drink products and all sales of products within Starbucks coffee shops.

While Starbucks holds the crown in the $13.8 billion U.S. 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 has been bolstering its presence in the U.S., and last year added niche brands Blue Bottle Coffee and Chameleon Cold-Brew to expand its portfolio. Nespresso has introduced a machine that’s more attuned to Americans’ preference for bigger cups of joe three years ago.

Starbucks in November agreed to sell tea brand Tazo to Nestle rival Unilever for $384 million. - Bloomberg

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