Starbucks share price: Coffee shop to pay $2.76bn compensation to Kraft

By: Siana Mishkova
Siana Mishkova
Siana was one of our leading Journalists in 2013, and has since moved on to become Founder & Editor… read more.
on Nov 13, 2013
Updated: Oct 21, 2019, Wednesday, November 13: Starbucks Corp (NASDAQ:SBUX) reported yesterday that an arbitrator ruled it must pay compensation of $2.757 billion to Kraft Foods in a move that marked the end of a prolonged dispute between the two companies over Starbucks’s packaged coffee business. The row started in 2010, when Starbucks offered $750 million to Kraft to terminate an agreement, under which Kraft had been distributing Starbucks packaged coffee to food retailers since 1998. The initial term of the agreement was due to expire in March 2014. Kraft rejected the offer, but Starbucks terminated the deal in March 2011 without paying any compensation. CFO Troy Alstead said: “We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft.” Kraft claimed that the termination of the contract was improper, as it had “succeeded in building a highly profitable CPG business, from a base of approximately $50 million (in 1998) to approximately $500 million in 2010.”

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Starbucks said: “We strongly disagree with the arbitrator’s conclusion,” which ordered it to pay Kraft Foods $2.23 billion in damages plus $527 million in prejudgment interest and attorneys’ fees. The amount awarded was higher than Wall Street expected, but broadly in line with the nearly $3.0 billion Kraft had sought, according to analysts, quoted by Reuters, Bloomberg and The Wall Street Journal. Starbucks said it has adequate liquidity both in the form of cash on hand and available borrowing capacity to fund the payment, which will be booked as a charge to its operating expenses for the fiscal year that ended on September 30. The company will restate its annual report, released last month. It will host a conference call to discuss the outcome of the arbitration later today.

On October 1, 2012, Mondelez International (NASDAQ:MDLZ) spun off Kraft Foods Group, its North American grocery operations, as an independent company. Under an agreement between the two companies, Kraft Foods Group will direct the net proceeds from the dispute to Mondelez, which plans to use them to buy back shares in addition to its current $6 billion share repurchase programme.

Shares in Starbucks are down by 1.4 percent in pre-market trade on the NASDAQ today, while shares in Mondelez are 2.4 percent up.
**On November 12 buy Starbucks shares at $79.99.**
**On November 12 sell Starbucks shares at $78.73.**
**On November 12 buy Mondelez shares at $33.42.**
**On November 12 sell Mondelez shares at $33.20.**
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