Starbucks Corporation (NASDAQ: SBUX)announced on Sunday that Nestle S.A. will pay $7.15 billion to market Starbucks’ drinks to accelerate the company’s global sales.
As part of the agreement, Nestle will obtain the rights to market, sell, and distribute various Starbucks drinks, including its Teavana business. Additionally, Starbucks brand portfolio will be represented on Nestle’s single-serve capsule systems.
Starbucks’ shares were trading 2.57 percent higher during Monday’s pre-market hours.
“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 chief executive officer, Starbucks.
Starbucks says the alliance will create new growth opportunities in North American markets while expanding into international markets. Nestle, a Swiss-based company, will be able to expand its name further out using Starbucks’ name and resources.
The alliance enhances the Nestle’s retail and presence in coffee in the U.S., which will bolster its struggling coffee products portfolio of Nespresso and Dolce Gusto.
“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.
Starbucks will lead sourcing, roasting and Starbucks global brand management, while the two together will closely work on innovation and go-to-market strategies.
The agreement is expected to close this summer or early fall.
Starbucks intends to use the proceeds to accelerate share buybacks and expects to return approximately $20 billion in cash to shareholders through 2020. The deal will also increase the company’s EPS by the end of 2021 or sooner.