Nestle SA and Starbucks Corp are joining forces to rejuvenate their coffee empires.
The Swiss maker of Nescafe is to pay the Seattle-based chain US$7.15 billion up-front in cash for the rights to sell Starbucks coffee products in supermarkets, restaurants and catering operations, the companies said yesterday.
Nestle is to use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year.
The alliance underlines Nestle’s efforts to capture more upscale java drinkers in the US, where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co.
The investment company of Europe’s billionaire Reimann family has spent more than US$30 billion building a coffee empire by acquiring assets such as Keurig Green Mountain and Peet’s.
“The deal with Starbucks allows Nestle to keep JAB at a distance,” Bank Vontobel AG analyst Jean-Philippe Bertschy wrote in a note, adding that the price might seem expensive, but the investment might pay off within three to four years.
“It allows Nestle to gain scale in the US, a weak spot so far,” he said.
Nestle shares rose as much as 0.8 percent in early Zurich trading. The stock has dropped about 9 percent this year.
The deal is Nestle’s first tie-up with a major rival in coffee. Nestle expects the deal to contribute positively to its earnings per share and organic growth targets from next year.
The business has annual sales of US$2 billion, about 9 percent of Starbucks’ total revenue. The coffee chain said it would use the proceeds to accelerate share buybacks, expecting to return about US$20 billion through repurchases and dividends through fiscal 2020.
Starbucks would continue to produce the coffee products in North America, while Nestle would be in charge of manufacturing in the rest of the world. Sales are to be booked by Nestle, which is to pay royalties to Starbucks.
About 500 Starbucks employees would join Nestle and operations would continue to be located in Seattle. The agreement is expected to close by the end of this year.
Starbucks said Nestle would also obtain the rights to sell packaged coffee products under brands including Seattle’s Best Coffee, Starbucks VIA and Torrefazione Italia.
The deal also includes the Teavana tea brand, although it excludes ready-to-drink products and all sales within Starbucks coffee shops.
“With Starbucks, Nescafe and Nespresso, we bring together three iconic brands in the world of coffee,” Nestle chief executive officer Mark Schneider said in the statement.
The deal is Nestle’s largest since he began leading the company last year.
Schneider has reversed Nestle’s policy on roast-and-ground coffee, a category that the company began shunning decades ago, as it considered it a commodity business with little value to add.
The company’s US$425 million purchase of a stake in Blue Bottle Coffee last year was a step back into the segment, whose growth prospects have revived as coffee consumers become more sophisticated.
While Starbucks holds the crown in the US$13.8 billion US coffee market, Nescafe and Nespresso hold the top ranks globally, according to Euromonitor.
Starbucks has been examining each of its businesses to streamline its operations and focus on those that add most to sales and profit, chief financial officer Scott Maw told a conference call in January.
Nestle last year also added niche brand Chameleon Cold-Brew to expand its portfolio in the US. Nespresso several years ago also introduced a machine that is more attuned to US consumers’ preference for bigger cups of joe.
Starbucks in November last year agreed to sell tea brand Tazo to Unilever PLC for US$384 million.
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
FUTURE PLANS: Although the electric vehicle market is getting more competitive, Hon Hai would stick to its goal of seizing a 5 percent share globally, Young Liu said Hon Hai Precision Industry Co (鴻海精密), a major iPhone assembler and supplier of artificial intelligence (AI) servers powered by Nvidia Corp’s chips, yesterday said it has introduced a rotating chief executive structure as part of the company’s efforts to cultivate future leaders and to enhance corporate governance. The 50-year-old contract electronics maker reported sizable revenue of NT$6.16 trillion (US$189.67 billion) last year. Hon Hai, also known as Foxconn Technology Group (富士康科技集團), has been under the control of one man almost since its inception. A rotating CEO system is a rarity among Taiwanese businesses. Hon Hai has given leaders of the company’s six