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Starbucks in $7.2 billion deal with Swiss food giant

Starbucks Corp. is joining forces with Nestlé, the world’s largest packaged food company.

Nestlé will pay Starbucks $7.15 billion for the right to market, sell, and distribute Starbucks’ packaged coffee and tea (Teavana) products in grocery stores and other outlets around the world. The agreement does not include Starbucks’ physical assets (cafes). It also excludes the retailer’s ready-to-drink coffee, tea and juice products.

“This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé,” said Kevin Johnson, president and CEO, Starbucks. “This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values.”

As part of the deal, approximately 500 Starbucks employees will join Nestle, with operations remaining in Seattle. Starbucks will continue to produce the coffee products in North America, while Nestle will be in charge of manufacturing in the rest of the world.

“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mark Schneider, CEO, Nestlé. "With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee. We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing.”

According to a report by Bloomberg, sales will be booked by Nestle, which will pay royalties to the U.S. coffee retailer, and Starbucks will continue to produce packaged coffee and other goods in North America, while Nestle will be in charge of the rest of the world.

Starbucks said it intends to use the after-tax proceeds from this up-front payment primarily to accelerate share buybacks. It now expects to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020.
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