Nestlé strikes $7.1bn deal with Starbucks to sell its coffee

Nestlé struck a $7.1bn deal with Starbucks to obtain all the rights to commercialize its products in supermarkets.

A press release from Seattle company Starbucks on Monday revealed both companies have struck a “global alliance” that allows Nestlé to commercialize the different products found in Starbucks. The deal excludes all the ready-made products sold in Starbucks, Nestlé clarified.

“This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle,” Starbucks president and CEO Kevin Johnson said.

Both companies will work together in development of new commercialization strategies.

Starbucks also announced it intends to use the proceeds to boost the share buybacks that will provide a return of approximately $20bn cash to shareholders through fiscal year 2020. It also expects the transaction to add earnings per share by the end of 2021.

Nestlé expects the alliance to contribute positively to its earnings per share and growth targets from 2019. This boosts Nestlé's position in the US coffee market where it currently holds 5th place.

Jean-Philippe Berschy, an analyst at Bank Vontobel AG said: “The deal with Starbucks allows Nestle to keep JAB at a distance. It allows Nestle to gain scale in the U.S., a weak spot so far.”

Matthew Barry, analyst at Euromonitor said on Friday: "Nestle is far and away the largest hot drinks company globally, with more in sales than the next five largest hot drinks companies combined.". Although, he warns Nestlé's position is not as secure as it once was.