Starbucks is rallying after Nestle agrees to pay $7.15 billion to sell its coffee around the world

A mug bearing a Starbucks logo is pictured next to coffee beans during a news conference in Tokyo April 13, 2010.

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A mug bearing a Starbucks logo is pictured next to coffee beans during a news conference in Tokyo April 13, 2010.
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REUTERS/Yuriko Nakao

  • Starbucks is rallying ahead of Monday’s opening bell after announcing a partnership with Nestle.
  • Nestle will pay Starbucks $7.15 billion in cash plus additional royalties for the right to sell Starbucks products around the world.
  • Starbucks will use the influx in cash to give back shareholders $20 billion in the form of buybacks and dividends.
  • Watch Starbucks trade in real-time here.

Starbucks is rising more than 3% in pre-market trading Monday after announcing a partnership with Nestle to expand its coffee reach. The Swiss-based food and drink company, known for Nesquik and Nespresso, will pay Starbucks $7.15 billion in cash for the right to sell Starbucks products around the world.

“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 Starbucks CEO Kevin Johnson.

As a result of the new influx of money, Starbucks intends to give shareholders $20 billion in the form of buybacks and dividends through 2020. The coffee company also said the deal will also increase earnings per share by the end of 2021 or sooner.

Nestle will continue to pay royalties on top of the $7.15 billion to market and distribute Starbucks products such as Starbucks coffee capsules and Teavana tea while getting the opportunity to step further into the US market. Starbucks, which is looking to expand more into international markets, will likely benefit from Nestle’s international reach.

The alliance between the largest and fifth largest market player in the US will bring their combined market share in coffee to nearly 20% and follows a string of deals in the highly fragmented consumer drinks category. In January, Dr. Pepper Snapple and Keurig Green Mountain announced a merger which would result in the combined company, Keurig Dr. Pepper.

Starbucks shares were little changed this year ahead of the announcement.

SBUX

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Markets Insider