Nestle & Starbucks Form Global Coffee Alliance
SEATTLE — Starbucks Corp. is boosting the global reach of its brands in consumer packaged goods and foodservice by forming a pact with Nestlé S.A.
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, according to Seattle-based Starbucks.
As part of the alliance, Nestlé 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.
Nestlé will pay Starbucks $7.15 billion in closing consideration, and Starbucks — with a focus on long-term shareholder value creation — will retain a significant stake as licensor and supplier of roast and ground and other products going forward.
In addition, the Starbucks brand portfolio will be represented on Nestlé's single-serve capsule systems.
"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," said Kevin Johnson, president and CEO, Starbucks. "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."
This global alliance combines the strength and affinity of the Starbucks brand with the global reach of Nestlé and its coffee brands, creating new growth opportunities in the established North American markets and unlocking expansion in international markets.
"This transaction is a significant step for our coffee business, Nestlé's largest high-growth category," said Mark Schneider, CEO, Nestlé. "With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world."
In the United States, the partnership enhances Nestlé's retail and foodservice presence in coffee, complementing its position in instant coffee and super-premium single serve with Starbucks' strong presence in K-cup pods. As part of this perpetual global license agreement, Starbucks will lead in sourcing, roasting and Starbucks' global brand management for the alliance, while the two companies will work closely together on innovation and go-to-market strategies to bring the best coffee to customers around the world.
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.
According to Starbucks, the company 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 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.