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Nestle pays $7.1 billion to market Starbucks' coffee

10 May 2018, 02:07 | Melanie Burgess

Nestle to pay $7.15 bln to Starbucks to jump-start coffee business

Nestlé Inks Deal to Sell Starbucks Products World-Wide

Nestle and Starbucks are joining forces.

Nestle notes that this deal means it will be able to sell consumer packaged versions of Starbucks, Seattle's Best Coffee, Starbucks Reserve, Teavana, Starbucks VIA and Torrefazione Italia products.

In the third-biggest transaction in Nestle SA's 152-year history, the Swiss food giant will spend $7.15 billion for the right to market Starbucks Corp. products from beans to capsules, marrying its worldwide distribution network with the allure of arguably the biggest name in java.

Starbucks just confirmed a previously rumored deal to license its consumer packaged goods business to Nestle, but at a much higher price than expected.

Coffee is a growth area for big food and drinks companies, which are trying to offset falling sales as demand for smaller-brand labels grows. The food giant also predicts that its earnings per share will increase as a result of this deal. This includes speeding up its share buyback plan.

Nestle has been adjusting its portfolio of products, through sales and acquisitions. The company also confirmed that from next year, it will use Starbucks brand in its Dolce Gusto and Nespresso brands.

Nestle chief executive Mark Schneider described it as a "significant step".

"This is all about growth", Schneider told analysts.

The investment of the European billionaire family Reimann has spent almost $30 billion for building a coffee empire by taking up the assets of companies like Keurig Green Mountain and Peet's.

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About 500 Starbucks employees will join Nestle under the agreement, the Switzerland-based company said.

Nestle shares rose 0.5 per cent in early trading, having fallen by more than 8 percent so far this year.

The agreement will strengthen Nestle's position in the United States, where it ranks fifth with less than 5 percent of the market.

Starbucks shares gained 3.2 per cent in premarket trading in NY.

Other big players are growing as well, including Italy's Lavazza, which is now the world's No. 3.

Nestle reported sales of $120 billion a year ago, with coffee one of its fastest-growing categories.

Starbucks has announced a new partnership with Nestlé in an effort to expand its global reach of prepackaged java. They previously had deals with Kraft and Acosta Inc to sell their products in shops.



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