SBUX Starbucks Corporation

By Brian Blackstone in Zurich and Anthony Shevlin in Barcelona 

Nestlé SA said Monday it agreed to sell Starbucks Corp.'s consumer and food service products world-wide, as the Swiss company embraces coffee as a growth opportunity to offset flagging sales elsewhere.

Nestlé said Starbucks will receive an upfront cash payment of $7.15 billion plus royalties as part of a global perpetual license. The business in question has annual sales of $2 billion. The transaction doesn't include any fixed assets and excludes Starbucks' ready-to-drink products.

Nestlé said the deal doesn't include sales of products within Starbucks coffee shops.

Coffee has been highlighted by Nestlé as a priority product line, along with bottled water, pet care and infant nutrition. Last September, Nestlé bought a majority stake in specialty U.S. roaster and retailer Blue Bottle Coffee.

Nestlé has been shaking up its product mix, which stretches from frozen pizza and bottled water to noodles and medicinal foods. In addition to the Blue Bottle deal, Nestlé last year bought California-based Sweet Earth, which makes vegan and vegetarian products. In June, it bought a minority stake in startup Freshly, which sells prepared meals directly to U.S. consumers.

In January, Nestlé sold its confectionery business, which includes the Butterfinger and Baby Ruth brands, to Italian candy maker Ferrero International SA for $2.8 billion in cash.

Like other large consumer-goods companies, Nestlé has struggled with competition from local upstarts and a rapid shift in consumer tastes toward locally grown, organic food. The company has also had trouble raising its prices.

Nestlé's organic growth, which strips out the effects of currency changes, acquisitions and divestments, was 2.4% last year. That was the weakest figure since at least the mid-1990s when Nestlé started tracking that metric.

About 500 Starbucks employees will join Nestlé; operations will be located in Seattle, the company said. Nestlé will work jointly with Starbucks on new offerings under a brand board that will meet regularly. Starbucks must approve of new products to be sold under the label.

The Starbucks deal should contribute to earnings and organic growth starting next year, Nestlé said.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

May 07, 2018 02:48 ET (06:48 GMT)

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