Starbucks Corporation (Nasdaq: SBUX) stock traded slightly higher on Monday after Nestle announced a new deal to market Starbucks products around the world. Starbucks will receive $7.15 billion for the marketing rights, and analysts say the company will also get valuable international exposure for its global consumer products business.
Nestle will not get any physical Starbucks assets as part of the deal, but it will take on roughly 500 Starbucks employees. In addition to the up-front payment, Starbucks will reportedly receive royalties as well.
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America coffee drinkers know Starbucks as the leading national coffee brand, but Starbucks has been focusing on expanding its presence overseas in recent years. According to Euromonitor, Nestle is the dominant force in the global hot drinks market, generating more sales than the next five largest competitors combined. In the U.S., however, Nestle has fallen to fifth place with just 5 percent market share. Starbucks currently holds 14 percent U.S. market share in the category.
“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,” Starbucks CEO Kevin Johnson says in a statement.
Starbucks said it would use proceeds from the deal to commit approximately $20 billion to share buybacks and dividend payments through fiscal 2020. The company also said the deal would be accretive to earnings per share by no later than fiscal 2021. Nestle said the deal would boost its EPS by 2019.
Susquehanna analyst Pablo Zuanic says the Nestle deal will jump-start Starbucks’ international global consumer products business. Despite progress in the overseas market, Zuanic says Starbucks is still a minor player.
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“SBUX CPG has limited presence overseas, so the Nestle network will enable growth in single-serve pods,” Zuanic says, according to Seeking Alpha. “Although in principle this does not change things dramatically in the US, one would think the Nestle clout … could give SBUX CPG more clout.”
Investors were initially not impressed by the deal. SBUX stock traded higher by less than 1 percent on Monday morning and remains up less than 1 percent year-to-date.
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Starbucks Corporation (SBUX) Gets International Boost From Nestle Deal originally appeared on usnews.com
