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Perfect blend? Nestle buys privilege to sell Starbucks coffee for $7.2bn

Perfect blend? Nestle buys privilege to sell Starbucks coffee for $7.2bn
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 is set to spend $7.15 billion in the deal, which is seen as the third-biggest transaction in the Swiss food giant’s 152-year history. The company expects the deal to boost revenues and enlarge its presence in the US market.

“This transaction is a significant step for our coffee business, Nestle’s largest high-growth category,” CEO Mark Schneider said. “With Starbucks, Nescafe and Nespresso we bring together three iconic brands in the world of coffee.”

The world’s largest packaged food producer won’t get any fixed assets in the deal, but expects Starbucks’ name recognition both in the US and across the globe to expand its market share. Nestle has reportedly struggled for years with its own products, like Nespresso and Dolce Gusto, in the US.

“Nestle expects this business to contribute positively to its earnings per share and organic growth targets as from 2019. Nestle’s ongoing share-buyback program will remain unchanged,” the company said in a statement.

The deal will allow the company to mend the knockoff capsules business, which has been dented for years. The Swiss company will take control of Starbucks capsules, among other products. 

“This will be his first big M&A test. Nestle’s acquisition track record over the last 10-15 years has been less than stellar,” Andrew Wood, an analyst at Sanford C. Bernstein, told Bloomberg.

With an estimated net worth of $44 billion, Starbucks was ranked the second most valuable brand in fast food, according to BrandZ’s Global 2017 report.

“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,” said the chain’s chief executive, Kevin Johnson.

Nestle shares rose 1.1 percent as of 12:07pm in Zurich. They’ve dropped about nine percent since the beginning of the year.

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