Nestle shares gain on Starbucks sales rights deal

Nestle shares are higher Monday, as the Swiss consumer foods group is buying the rights to sell Starbucks products around the world, for $7.15 billion.

Nestle shares gain on Starbucks sales rights deal

Nestle shares are trading higher as the Swiss consumer group has bought the rights from Starbucks to sell its products outside of the chain’s coffee shops. Nestle will pay Starbucks $7.15 billion for the global rights in an up-front cash only deal.

By 1400 BST, Nestle shares were 1.70% higher at CHF77.66. The gain in the stock follows some downward pressure following its earnings results and a price agreement with some EU supermarkets.

Nestle targets growth in north America

Nestle announced the news earlier Monday and said it will allow the firm to sell Starbucks branded products outside of the coffee shops, around the world.

“This transaction provides Nestlé with a strong platform for continued growth in North America,” Nestle said in its press release announcing the news.

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

Starbucks was equally upbeat on the agreement.

“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,” Starbucks CEO and President, Kevin Johnson said.

“This historic deal is part of our ongoing efforts to focus and evolve our business to meet the changing consumer needs,” Johnson added.

Positive earnings contribution

The news comes as Nestle continues to work on growing its business after it sold off its US confectionary division to Ferrero earlier in 2018. It also follows Nestle’s decision in 2017 to buy a stake in California-based coffee business, Blue Bottle Coffee.

Nestle said its existing Starbucks sales have already generated some $2 billion per year for the Swiss business. And, it forecasts a positive contribution to its earnings, as soon as 2019.

Around 500 Starbucks employees will join Nestle as part of the deal in Seattle. The agreement also remains subject to the usual regulatory requirements.

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