Nestle SA agreed to partner with Starbucks Corp. to market the consumer and food service products of the coffee chain globally in a first step that brings together the main competitors in the Java market.
Nestle will pay Starbucks $7.15 Billion in advance for a $2 Billion annual business, the Swiss company said on Monday. Nestle expects the business to contribute positively to its earnings per share and its organic growth target from 2019. Nestle’s ongoing share buyback program will remain unchanged.
The alliance underscores Nestle’s efforts to attract more high-quality Java drinkers. The manufacturer of Nespresso and Nescafe was overtaken by JAB Holding Co. in the USA. The investment company of the European billionaire family Reimann has invested more than $30 Billion to build their coffee empire through acquisitions such as Peet’s and Keurig Green Mountain.
“With Starbucks, Nescafe and Nespresso, we’re bringing together three iconic brands in the coffee world,” said Nestlé’s chief executive officer Mark Schneider in the statement.
About 500 Starbucks employees will join Nestle. The operation will continue to be based in Seattle.
The agreement is liable to customary regulatory sanction and is anticipated to close by 2018 end. 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 US coffee market, Nescafe and Nespresso hold the leading positions worldwide, according to Euromonitor. Starbucks has investigated every one of its businesses to streamline its business and focus on those that contribute most to revenue and profits, Chief Financial Officer Scott Maw said in a January teleconference.
Nestle has strengthened its presence in the US and added the niche brands Chameleon Cold-Brew and Blue Bottle Coffee to its portfolio last year. Nespresso brought in a machine that is better suited to the Americans’ fondness for larger joe cups three years back.
Starbucks agreed in November to sell Tazo, the tea brand for $384 million to Nestle rival Unilever.