Nestle to pay 7.15 bln Dollars for global coffee pact with Starbucks

AFP Nestle pays $7.15 billion to license Starbucks products

With the strength of the Starbucks brand, Nestle will be able to better compete against JAB Holdings, an investment holding company that has gobbled up coffee businesses and brands associated with Peet's, Caribou, Stumptown and Krispy Kreme Doughnuts.

The world's biggest coffee company, Starbucks, and food and beverage major Nestle have clinched a deal granting the latter the right to market Starbucks-branded coffee beans and capsules.

Nestle and Starbucks are joining forces to pump new flavor into the coffee industry and the related ETFs are reacting.

The multibillion-dollar Swiss food and beverage company - which owns Nespresso, Nescafé, Kit Kat, Smarties, and more - will pay Starbucks $7.15 billion for rights to sell the Seattle-based coffee chain's products around the world.

In a bid to rejuvenate their coffee empires, Nestle and Starbucks have signed a deal.

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The Swiss company also revealed in its announcement that 500 Starbucks employees will transfer over to its business but they will continue to be located at its Seattle headquarters.

It said the Starbucks packaged goods business generates annual revenue of about $2 billion a year.

Nestle already has a significant presence in the coffee business with well-known brands like Nescafe and Nespresso. "With Starbucks, Nescafe and Nespresso we bring together three iconic brands in the world of coffee". "We do not want the consumer to perceive that Starbucks is now part of a bigger family", a Nestle source said. Starbucks said in an announcement that the deal was expected to boost EPS by no later than the end of fiscal 2021; the big upfront payment would help fund some $20 billion in buybacks and dividends through fiscal 2020.

Starbucks, strong mostly in the United States, will have the final say on expanding its product range. It also plans to open 1,000 upscale Starbucks Reserve stores and a handful of Roastery coffee emporiums to take on high-end coffee rivals such as Intelligentsia Coffee & Tea and Blue Bottle.

Nestle hinted a year ago that it was looking at focusing on higher-growth areas like pet care, coffee and infant nutrition. And previous year, Nestle bought a majority stake in high-end coffee company Blue Bottle.

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