ETFs React to Nestle and Starbucks Joining Forces

Nestlé pays $7.15 billion to license Starbucks products

Nestlé Inks Deal to Sell Starbucks Products World-Wide

In the third-biggest transaction in Nestle SA's 152-year history, the Swiss food giant will spend $7.15 billion for the right to market Starbucks Corp. products from beans to capsules, marrying its global distribution network with the allure of arguably the biggest name in java.

Let's take a look at how ETFs with Nestle and Starbucks exposure are doing Monday at 11 a.m.

The idea for opening up a Starbucks in the popular Italian city came from the company's CEO Howard Schultz who got inspired by all of the delicious coffee.

"With Starbucks, Nescafe and Nespresso, we bring together three iconic brands in the world of coffee", Nestle Chief Executive Officer Mark Schneider said in the statement.

The deal of Nestle is the first tie-up with a major rival in coffee. A willingness to pay for exotic beans and speciality drinks means companies can brew up richer profit margins than in mainstream packaged food. Starbucks will use the new revenue to speed up share buybacks and expects to return about $20 billion in cash to its shareholders through share buybacks and dividends by fiscal year 2020.

The deal is subject to regulatory approval and is expected to close by the end of the year.

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The move enhances Nestle's brand among U.S. coffee drinkers. while Starbucks will gain more brand recognition overseas.

Nestle said its ongoing share-buyback program will remain unchanged.

He said he expects the alliance to boost Nestle in North America and benefit Starbucks in China, which is Nestle's second largest market.

Starbucks has long farmed out retail distribution of its packaged products, but the partnerships have not always been smooth.

The agreement only covers Starbucks' packaged goods sold outside the US company's stores. Market leader Starbucks itself only has a 14 per cent share, according to Euromonitor International. The food giant also predicts that its earnings per share will increase as a result of this deal. It will also add the brand to its own Nestle single-serve capsule product.

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