Item 1.01. Entry into a Material Definitive Agreement.
Introduction
On May 6, 2018,
Starbucks Corporation, a Washington Corporation (the
Company
) and Nestlé S.A., a
société anonyme
organized under the laws of Switzerland (
Nestlé
) entered into a Transaction
Agreement (the
TA
).
Pursuant to the terms of, and subject to the conditions in, the TA, the Company and Nestlé
have agreed to effect a long-term strategic arrangement pursuant to which, on the date (the
Closing Date
) of closing under the TA (the
Closing
):
(i)
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the Company will sell and Nestlé will purchase, subject to certain exceptions set forth therein, all of the assets exclusively used or exclusively held for use in the Companys business of marketing, selling
and distributing Starbucks, Starbucks Reserve, Teavana, Seattles Best Coffee, Starbucks VIA and Torrefazione Italia branded products to consumer packaged goods and foodservice businesses (the
Transferred Assets
) and
Nestlé will assume certain liabilities related thereto (such purchase and assumption the
Asset Transfer
); and
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(ii)
|
the Company and Nestlé (or their respective affiliates) will enter into the following additional agreements: (A) a Master Supply, Distribution and Licensing Agreement (the
MSDLA
); (B)
certain Supply and Distribution Agreements (the
Initial Supply and Distribution Agreements
); (C) certain Trademark License Agreements (the
Initial Trademark License Agreements
); and (D) a Transition
Services Agreement (the
Transition Services Agreement
and, together with the TA, the MSDLA, the Initial Supply and Distribution Agreements, the Initial Trademark License Agreements and certain other agreements required to be
delivered at Closing, the
Transaction Agreements
).
|
Consideration
Pursuant to the terms of the TA and the MSDLA, at the Closing Date, Nestlé shall pay to the Company an amount in cash equal to
$7,150,000,000, consisting of the following payments: (i) in consideration for the Asset Transfer, a base purchase price of $330,000,000, to be adjusted for the value of certain inventory to be transferred in connection with the Asset Transfer;
and (ii) in consideration for entry into the MSDLA, the Initial Supply and Distribution Agreements, the Initial Trademark License Agreements and the rights granted to Buyer and its affiliates thereunder, an amount equal to $6,820,000,000, to be
determined in accordance with the terms and conditions of the MSDLA (the
Effective Date Payment
).
Conditions
The Closing is subject to the satisfaction or waiver of certain conditions, including: (i) expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
HSR Act
), as amended, and the receipt of certain foreign and domestic governmental approvals; (ii) the absence of governmental restraints or prohibitions
preventing or making illegal the consummation of the transactions contemplated by the TA; and (iii) successful completion of any consultation requirements under Article 25 of the Dutch Works Council Act in respect of the transactions
contemplated by the TA, as well as other conditions customary for a transaction of this size and nature (including, among other things, the truth and accuracy as of the Closing Date of the representations and warranties of the parties made in the TA
(subject to applicable materiality qualifiers as set out in the TA), the due performance and compliance in all material respects of the agreements and covenants required to be performed by the other party prior to the Closing Date and the delivery
of executed versions of the other Transaction Agreements).
Certain Other Terms of the TA
The TA contains certain termination rights for each of the Company and Nestlé, including in the event that: (i) the Closing is not
consummated on or before November 6, 2018 (the
Outside Date
), which may be extended by written notice of either party until May 6, 2019 for purposes of obtaining antitrust approvals; (ii) if any law makes illegal or
otherwise prohibits the transactions contemplated by the TA or the other Transaction Agreements; (iii) if any governmental authority issues a final and
non-appealable
order restraining or enjoining the
transactions contemplated by the TA; (iv) for the other partys uncured material breach of, inaccuracy in or failure to perform, any representation, warranty, covenant or agreement that would lead to the failure of certain closing
conditions.
In the case of a failure to obtain approval under the HSR Act prior to the Outside Date and subject to certain other
conditions, the TA provides for Nestlé to pay to Starbucks a fee of $250,000,000 upon termination of the TA.
The TA contains
customary representations and warranties and
pre-closing
covenants made by each of the Company and Nestlé, including for each of the parties to use their respective reasonable best efforts to obtain
regulatory approvals.
MSDLA
In connection with, and as a condition to Closing under, the TA, the Company and Nestlé will enter into the MSDLA, pursuant to which,
among other things, the parties will agree to the establishment of an overall framework for the distribution and supply relationship between the Company and Nestlé for the continued operation and global development of the consumer packaged
goods and foodservice distribution channels by Nestlé.
Pursuant to the terms of the MSDLA, the Company and Nestlé will:
(i) concurrently with execution of the MSDLA, enter into the Initial Supply and Distribution Agreements and the Initial Trademark License Agreements with respect to the Initial Territories (as defined in the MSDLA); and (ii) acknowledge an
intention to enter into additional supply and distribution agreements and trademark license agreements with respect to additional international territories, in each case, among other things, for the supply of certain products to Nestlé, the
appointment of Nestlé as the Companys exclusive distributor to consumer packaged goods and foodservice customers (subject to certain exceptions) and the grant of certain licenses with respect thereto in the respective territories
provided therein.
In consideration for the entry into the MSDLA, the Initial Trademark License Agreements, the
Initial Supply and Distribution Agreements and the rights granted to Nestlé and its affiliates under each of those agreements, concurrently with execution of the MSDLA, Nestlé will pay to the Company and its applicable affiliates the
Effective Date Payment.
The MSDLA will remain in force unless terminated by: (i) mutual consent; (ii) either party for the
other partys (A) material breach which is not remedied within 180 days of notice or (B) insolvency, bankruptcy or liquidation; (iii) the Company (A) for Nestlés breach of its covenant not to acquire certain
interests in certain competitors of the Company or (B) if Nestlé or its affiliates challenge the validity of the licensed marks or the entitlement of the Company or its affiliates to own, use or license the use of any of the licensed
marks; or (iv) Nestlé for the Companys breach of its covenant not to acquire certain interests in certain Nestlé competitors. The Company may also terminate Nestlés appointment in relation to certain territories
if Nestlé fails to: (i) meet certain agreed annual sales targets for two consecutive years (although for most territories this right will not arise until 10 years after Nestlé starts to distribute products in such territory); or
(ii) launch certain products in certain territories within three years of an agreed upon launch plan. Upon certain change of control events of either party, the other party may elect to: (i) consent to such change of control event; or
(ii) terminate the MSDLA, in which case, the operating rights and the related assets will revert to the Company upon the payment by the Company of a termination fee equal to the fair market value of such operating rights and related assets. Any
termination of the MSDLA will result in all supply and distribution agreements and trademark license agreements (including the Initial Supply and Distribution Agreements and Initial Trademark License Agreements) being automatically terminated.
Initial Supply and Distribution Agreements
In connection with, and as a condition to Closing under, the TA, the Company and Nestlé (or their respective affiliates) will enter into
the Initial Supply and Distribution Agreements, pursuant to which, among other things, the Company will appoint Nestlé as its exclusive distributor (subject to certain exceptions) to market, sell and distribute certain products in the US and
Canada (the
Initial Territories
) within certain channels, including the consumer packaged goods and foodservice channels.
The Initial Supply and Distribution Agreements will continue in force unless terminated: (i) by mutual consent; or (ii) by either
party: (A) upon the other partys material breach which is not remedied within 180 days of notice thereof (or, in the case of a failure to pay an undisputed amount due thereunder by the applicable due date, within 60 days of notice
thereof); (B) upon the insolvency, bankruptcy or liquidation of the other party; (C) upon the other partys assignment of the agreement in violation of its terms; (D) upon the other party becoming a Sanctioned Person (as defined in
the Initial Supply and Distribution Agreements); (E) if any rights, obligations, liabilities or benefits under the agreement become prohibited under Economic Sanctions and Export Control Laws (as defined in the Initial Supply and Distribution
Agreements); or (F) upon the other partys breach of its economic sanctions and export control or anti-bribery covenants under the agreement. The Initial Supply and Distribution Agreements will also automatically terminate if: (i) the
MSDLA is terminated; (ii) and to the extent that the corresponding Initial Trademark License Agreement is terminated; and (iii) if the distributor entity ceases to be an affiliate of Nestlé and the Initial Supply and Distribution
Agreement was not assigned to Nestlé prior thereto.
Initial Trademark License Agreements
In connection with, and as a condition to Closing under, the TA, the Company and Nestlé (or their respective affiliates) will enter into
the Initial Trademark License Agreements, pursuant to which, among other things, the Company will grant to Nestlé certain licenses related to the licensed marks set forth therein in connection with the marketing, sale and distribution of
products in the Initial Territories pursuant to the Initial Supply and Distribution Agreements.
In consideration for the licenses granted pursuant to the Initial Trademark License Agreements,
Nestlé will pay to the Company a monthly fee equal to the
product
of: (i) Nestlés net sales of all products in the applicable territory during the relevant month; and (ii) the applicable royalty rate, which will
vary by product.
The Initial Trademark License Agreements will continue in force unless terminated: (i) by mutual consent; or
(ii) by either party: (A) upon the other partys material breach which is not remedied within 180 days of notice thereof (or, in the case of a failure to pay an undisputed amount due thereunder by the applicable due date, within 60
days of notice thereof); or (B) upon the insolvency, bankruptcy or liquidation of the other party. In addition, the applicable Company affiliated licensor (the
Licensor
) may terminate the applicable Initial Trademark License
Agreement: (i) upon the Nestlé affiliated licensees (the
Licensee
) assignment of the agreement in violation of its terms; (ii) if the Licensee or its affiliates makes unauthorized uses of the licensed marks
and such unauthorized use is not remedied within 90 days of notice thereof (extending to 180 days if Licensee is diligently attempting to remedy such unauthorized use); (iii) if the Licensee fails to take action against its sublicensees, employees,
representatives or contractors for, unauthorized uses of the licensed marks and such unauthorized use is not remedied or subject to active enforcement efforts within 90 days of notice thereof; (iv) if the Licensee or its affiliates challenge
the validity of the licensed marks; or (v) if the Licensee or its affiliates challenge the entitlement of the Licensor and/or its affiliates to own, use or license the use of any licensed marks. In addition, the Initial Trademark License
Agreements will automatically terminate if: (i) the MSDLA is terminated; (ii) and to the extent that the corresponding Initial Supply and Distribution Agreement is terminated; or (iii) if the Licensee ceases to be an affiliate of
Nestlé and the Initial Trademark License Agreement was not assigned to Nestlé or an affiliate of Nestlé prior thereto.
The foregoing descriptions of the Transaction Agreements do not purport to be complete and are qualified in their entirety to the full text of
the Transaction Agreements. The TA is attached hereto as Exhibit 2.1 and incorporated herein by reference in its entirety. The TA has been attached to provide investors with information regarding its terms. It is not intended to provide any other
factual information about the Company or Nestlé. In particular, the assertions embodied in the representations and warranties contained in the TA are qualified by information in confidential disclosure schedules provided by the Company in
connection with the signing of the TA. These confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the TA. Moreover, certain
representations and warranties in the TA were used for the purpose of allocating risk between the Company and Nestlé rather than establishing matters as facts and were made only as of the date of the TA (or such other date or dates as may be
specified in the TA). Accordingly, the representations and warranties in the TA should not be relied upon as characterizations of the actual state of facts about the Company or Nestlé. Investors and shareholders should read the TA together
with the other information concerning the Company and Nestlé that each company files in reports and statements with the SEC or other applicable regulators.