Nestle SA and Starbucks Corp are joining forces to rejuvenate their coffee empires.
The Swiss maker of Nescafe is to pay the Seattle-based chain US$7.15 billion up-front in cash for the rights to sell Starbucks coffee products in supermarkets, restaurants and catering operations, the companies said yesterday.
Nestle is to use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year.
The alliance underlines Nestle’s efforts to capture more upscale java drinkers in the US, where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co.
The investment company of Europe’s billionaire Reimann family has spent more than US$30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet’s.
“The deal with Starbucks allows Nestle to keep JAB at a distance,” Bank Vontobel AG analyst Jean-Philippe Bertschy wrote in a note, adding that the price might seem expensive, but the investment might pay off within three to four years.
“It allows Nestle to gain scale in the US, a weak spot so far,” he said.
Nestle shares rose as much as 0.8 percent in early Zurich trading. The stock has dropped about 9 percent this year.
The deal is Nestle’s first tie-up with a major rival in coffee. Nestle expects the deal to contribute positively to its earnings per share and organic growth targets from next year.
The business has annual sales of US$2 billion, about 9 percent of Starbucks’ total revenue. The coffee chain said it would use the proceeds to accelerate share buybacks, expecting to return about US$20 billion through repurchases and dividends through fiscal 2020.
Starbucks would continue to produce the coffee products in North America, while Nestle would be in charge of manufacturing in the rest of the world. Sales are to be booked by Nestle, which is to pay royalties to Starbucks.
About 500 Starbucks employees would join Nestle and operations would continue to be located in Seattle. The agreement is expected to close by the end of this year.
Starbucks said Nestle would also obtain the rights to sell packaged coffee products under brands including Seattle’s Best Coffee, Starbucks VIA and Torrefazione Italia.
The deal also includes the Teavana tea brand, although it excludes ready-to-drink products and all sales within Starbucks coffee shops.
“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.
The deal is Nestle’s largest since he began leading the company last year.
Schneider has reversed Nestle’s policy on roast-and-ground coffee, a category that the company began shunning decades ago, as it considered it a commodity business with little value to add.
The company’s US$425 million purchase of a stake in Blue Bottle Coffee last year was a step back into the segment, whose growth prospects have revived as coffee consumers become more sophisticated.
While Starbucks holds the crown in the US$13.8 billion US 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 told a conference call in January.
Nestle last year also added niche brand Chameleon Cold-Brew to expand its portfolio in the US. Nespresso several years ago also introduced a machine that is more attuned to US consumers’ preference for bigger cups of joe.
Starbucks in November last year agreed to sell tea brand Tazo to Unilever PLC for US$384 million.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure