FILE - In this April 7, 2016, file photo Nestle's directors speak in front of the Nestle's logo during the general meeting of Nestle Group, in Lausanne, Switzerland. Nestle has entered an agreement to... (Associated Press) 
 
 FILE - In this April 7, 2016, file photo Nestle's directors speak in front of the Nestle's logo during the general meeting of Nestle Group, in Lausanne, Switzerland. Nestle has entered an agreement to bring Starbucks products to millions of homes worldwide, announced Monday, May 7, 2018. (Laurent Gillieron/Keystone... (Associated Press) 
 
 SEATTLE (AP) — Nestle has entered into an agreement to bring Starbucks products to millions of homes worldwide. 
 
 The Swiss-based company announced Monday that Starbucks will receive an up-front cash payment of $7.15 billion for a business which generated annual sales of $2 billion. Approximately 500 Starbucks employees will join Nestle, and operations will continue to be located in Seattle. 
 
 The agreement excludes ready-to-drink products, and all sales of any products within Starbucks coffee shops. 
 
 In a news release, Starbucks CEO Kevin Johnson says the "historic deal is part of our ongoing efforts to focus and evolve our business to meet the changing consumer needs." 
 
 Nestle CEO Mark Schneider says it's a great day for coffee lovers. 
 
 The deal is subject to regulatory approval and is expected to close by the end of the year. ||||| LISTEN TO ARTICLE 5:39 SHARE THIS ARTICLE Facebook Twitter LinkedIn Email 
 
 For years, a smoldering George Clooney would sip his espresso and ask: “Nespresso...what else?” Turns out the answer is: Starbucks. 
 
 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 international distribution network with the allure of arguably the biggest name in java. 
 
 Nestle won’t get any physical assets in the deal. Instead, Chief Executive Officer Mark Schneider is harnessing the name recognition of Starbucks, with its 28,000 outlets around the globe and massive draw in the U.S. Nestle has struggled there for years with its own products like Nespresso and Dolce Gusto. 
 
 Nestle could use a jolt -- sales rose at their weakest pace in more than two decades last year. By entering a marketing pact with Starbucks, the Swiss company is revealing the limits to growing with Nescafe and Nespresso. 
 
 “Nestle needed a big brand, and they needed one fast,” said Alain Oberhuber, an analyst at MainFirst Bank in Zurich. “Starbucks is the only strong brand in roast-and-ground. It’s a rather defensive move -- a bit late -- but nevertheless, a strategically absolutely vital step.” 
 
 Nestle will pay $7.15 billion for the right to market Starbucks-branded products. Bloomberg’s Thomas Mulier reports. (Source: Bloomberg) 
 
 Starbucks shares rose less than 1 percent in New York trading. The company said it will use the deal proceeds to accelerate stock buybacks. Nestle gained as much as 1.8 percent in Zurich. Its shares have dropped about 7 percent this year. 
 
 Nestle’s Nespresso portioned-coffee business is one of its largest growth engines, but knockoff capsules -- including Starbucks-branded ones -- that are compatible with the machines have dented revenue. The new deal will give the Swiss company control of Starbucks capsules, among other products. It comes as Nestle’s Nescafe brand of instant coffees has lost market share in four of the past five years, according to Euromonitor. 
 
 Starbucks is the second-most-valuable brand in fast food, according to BrandZ’s Global 2017 report, which estimates it’s worth $44 billion. Schneider agreed to pay 3.6 times sales for the consumer-products business, higher than the average of 3 times for major global food deals, according to Andrew Wood, an analyst at Sanford C. Bernstein. 
 
 “This will be his first big M&A test,” Wood said. “Nestle’s acquisition track record over the last 10-15 years has been less than stellar.” 
 
 Nestle is making a new offensive in the U.S. a decade after Nespresso renewed a push into that market, enjoying limited success as most coffee drinkers avoid small espressos. Nestle has been struggling to gain market share in that market, given the prevalence of Starbucks and Green Mountain, which was bought out by Europe’s billionaire Reimann family. Their JAB Holding Co. has spent more than $30 billion building a coffee empire by acquiring assets such as Peet’s and combining with Mondelez International Inc.’s coffee business. 
 
 JAB is the biggest danger for Nestle, MainFirst’s Oberhuber said. The Nestle-Starbucks alliance comes just as JAB purchases Dr Pepper Snapple Group Inc. for $18.7 billion, diversifying in soft drinks. 
 
 Coffee Wars Nestle's market share has lagged behind that of competitors in the U.S. Source: Euromonitor 
 
 Starbucks intends to remain in the K-Cup pod business with JAB’s Keurig and is in talks with the company, Chief Executive Officer Kevin Johnson said on a conference call with analysts. 
 
 Nestle will take over about 500 Starbucks employees who will remain based in Seattle. 
 
 Starbucks will continue to produce packaged coffee and other goods in North America, while Nestle will be in charge of the rest of the world. Sales will be booked by Nestle, which will pay royalties to the coffee chain. The agreement adds prospects for growth outside of North America, where Starbucks outlets are less prevalent. 
 
 The Swiss company gets the rights to sell packaged coffee products in supermarkets, restaurants and catering operations under the flagship Starbucks brand and others including Seattle’s Best Coffee, Starbucks VIA and Torrefazione Italia. The deal includes the Teavana tea brand as well. 
 
 Starbucks sees the deal contributing to profit by 2021 or sooner, and will use proceeds to accelerate share buybacks. The chain expects to return around $20 billion to shareholders through 2020 via buybacks and dividends, according to a statement. 
 
 The alliance with Nestle will help Starbucks gain brand recognition abroad, executives said on the call. They also said Starbucks was in talks with a number of parties, but they picked Nestle after several months of contacts with Schneider. 
 
 Slower Growth 
 
 Now one of the world’s largest restaurant chains, Starbucks has transitioned from explosive growth of past years to a steadier pace of expansion. This has left some investors underwhelmed in recent quarters, with the shares rising less then 1 percent in 2018. 
 
 Nestle is taking a page from JAB’s strategy, as it begins to build a patchwork quilt of different brands in coffee instead of focusing almost exclusively on Nescafe and Nespresso. Last year’s $425 million purchase of a stake in Blue Bottle Coffee was a step back into the roast-and-ground segment, whose growth prospects have revived as consumers become more sophisticated about coffee. Nestle also added niche brand Chameleon Cold-Brew last year to expand its portfolio in the U.S. 
 
 That added complexity may make it harder to run the coffee business, and there’s a risk that the Starbucks food-service sales cannibalize those of Nescafe. 
 
 “Being a big brand is not an automatic passport to future success,” said Peter Walshe, BrandZ global strategy director at Kantar Millward Brown in London. “We see that in the coffee category, with the rise of smaller brands. Brands that are perceived to be making people’s lives better, are innovative and deliver a great experience, are the most successful. Both Starbucks and Nestle do so very strongly.” ||||| LOS ANGELES/LONDON (Reuters) - Swiss-based Nestle, the world’s largest food and beverage company, will pay Starbucks Corp $7.15 billion in cash for exclusive rights to sell the U.S. chain’s packaged coffees and teas around the world, tying a premium brand to Nestle’s global distribution muscle. 
 
 The agreement announced on Monday could rev up Starbucks’ roughly $2 billion business selling packaged Starbucks coffee, Teavana tea and other products through grocery stores and other retailers, including in China. 
 
 The alliance, which amounts to a licensing arrangement, frees Seattle-based Starbucks to focus on improving its mainstay U.S. cafe business, where traffic growth has stalled amid competition from fast-food chains and upscale coffee houses, while rapidly adding shops in China. 
 
 Starbucks will use proceeds to increase planned stock buybacks to $20 billion from $15 billion through fiscal 2020. It said the deal would add to earnings per share by 2021. 
 
 The agreement also includes Starbucks-branded capsules for Nestle’s Nespresso and Dolce Gusto single-serve brewers, which should help Nestle curb sales of alternatives from other providers. 
 
 Nestle expects the alliance to add to its earnings by 2019. It did not alter share buyback plans. 
 
 In addition to the cash payment, Starbucks will receive revenue from product sales and royalties. 
 
 “This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle,” said Starbucks Chief Executive Kevin Johnson, calling the arrangement a brand amplifier. 
 
 “That would have taken a lot of capital and years to build outside the U.S.,” John Culver, Starbucks’ group president for international and channel development, said on a conference call with analysts. 
 
 Nestle CEO Mark Schneider has made coffee a strategic priority as he tries to convince uneasy shareholders, including activist Third Point, that he can boost the sprawling group’s performance. 
 
 “This is all about growth,” Schneider told analysts. 
 
 He said he expects the alliance to boost Nestle in North America and benefit Starbucks in China, which is Nestle’s second largest market. 
 
 Packages of Starbucks coffee for sale are seen displayed at a Starbucks coffee shop in New York City, New York, U.S., May 4, 2018. REUTERS/Mike Segar 
 
 Analysts agreed that the alliance could strengthen Nestle’s position as the world’s biggest coffee company in a fast-changing landscape. Rival JAB Holdings, a private investment firm of Europe’s billionaire Reimann family, narrowed the gap with Nestle with a recent series of acquisitions, including Peet’s Coffee & Tea and Keurig Green Mountain. 
 
 In January, Nestle sold its U.S. confectionery business to Ferrero. It had been losing ground in the United States confectionery sector as rivals moved towards healthier products. 
 
 Nestle, which will take on about 500 Starbucks employees, will not buy any industrial assets as part of the deal. 
 
 Shares in Nestle rose about 1.6 percent in Switzerland, while Starbucks shares slipped 0.4 to close at $57.45 in U.S. trading. 
 
 RICHER BREW 
 
 Coffee is popular with younger customers who have grown up with Starbucks and are willing to pay for exotic beans and specialty drinks that translate into richer profit margins than mainstream packaged food. 
 
 The agreement will strengthen Nestle’s position in the United States, where ranks fifth with less than 5 percent of the market. Market leader Starbucks has a 14 percent share, according to Euromonitor International. 
 
 Other big players are growing as well, including Italy’s Lavazza, which is now the world’s No. 3. 
 
 Nestle CEO Schneider last year identified coffee as an area for investment. It bought Texas-based Chameleon Cold-Brew in November and took a majority stake in Blue Bottle Coffee, a small upscale cafe chain, in September. Starbucks, which in April reported a global drop in quarterly traffic to its established cafes, has been streamlining its business. It sold its Tazo tea brand to Unilever for $384 million and closed underperforming Teavana retail stores. 
 
 Starbucks plans to open 1,000 upscale Starbucks Reserve stores and a handful of Roastery coffee emporiums to take on high-end coffee rivals such as Intelligentsia Coffee & Tea and Blue Bottle. 
 
 Starbucks has long farmed out retail distribution of its packaged products, but the partnerships have not always been smooth. 
 
 Privately held Acosta Inc picked up that U.S. business in 2011 after Starbucks cited brand mismanagement and ended a 12-year relationship with Kraft Foods. 
 
 FILE PHOTO: The Nestle logo is seen during the opening of the 151st Annual General Meeting of Nestle in Lausanne, Switzerland April 12, 2018. REUTERS/Pierre Albouy/File Photo 
 
 The partnership with Kraft had been due to end in 2014, but Starbucks sought an early exit. It was later forced by an arbitrator to pay $2.76 billion to Kraft, which by then had split with the payment going to Mondelez International. 
 
 Nestle is no stranger to partnering with rivals through licensing deals or joint ventures, having reached arrangements with General Mills’ and Hershey, among others. ||||| MILAN (Reuters Breakingviews) - Nestlé is getting a welcome jolt from Starbucks. On Monday, the Swiss food giant said it would pay $7.2 billion for the perpetual right to sell Starbucks-branded coffee pods, beans and so on. With $2 billion a year in annual sales, the business will help Nestlé in its shift away from junk food. 
 
 A customer sips on a coffee at a Starbucks coffeehouse in Austin, Texas, U.S., February 11, 2017. Picture taken February 11, 2017. REUTERS/Mohammad Khursheed 
 
 Nestlé is already a big name in coffee, thanks to brands like Nespresso and Nescafe. But Chief Executive Mark Schneider wants to do more. This deal helps it bulk up in the United States, where it is comparatively weak, and means it has more products to sell in fast growing Asia. 
 
 Nestlé also rounds out its product range, which at the moment centres on high-end Nespresso capsules and cheap instant drinks. It will now sell more packaged ground coffee and beans, for example. This will make a notable but not huge difference to the group’s top line, which analysts estimate will total nearly 92 billion Swiss francs this year. 
 
 Based on the limited available financials, the deal looks reasonable. Nestlé is paying 3.6 times the sales of the business it is acquiring: higher than Nestlé’s current enterprise value multiple of 2.9 times sales but bang in line with Starbucks, Thomson Reuters data show. 
 
 To complicate things, though, there are probably ongoing royalties too, which would effectively reduce the margins of the acquired businesses. Nestlé did not release any details on this, but it does pay such a fee for its long-standing deal with posh ice-cream brand Haagen-Dazs. 
 
 For Starbucks the logic is a bit less clear. Its Channel Development division, which includes some of the out-of-shop products it is selling to Nestlé, delivers chunky margins. And given the group’s huge store footprint, this was an interesting alternative way to pursue growth. Instead, spending the proceeds on buybacks and dividends shows a lack of ambition. Still, retiring $7 billion of stock could give the $80 billion company a bit of a boost.
– How much does it cost to secure the right to sell Starbucks coffee? Nestle says the answer to that question is $7.15 billion, the amount it on Monday announced it would pay Starbucks for a business whose annual sales total $2 billion, reports the AP. The acquisition, the third-biggest for Nestle in its 152 years, would allow the Swiss giant to sell things like Starbucks' bagged coffee and individual pods; ready-to-drink products are excluded, and the deal doesn't have anything to do with Starbucks cafes. Reuters reports that regular shoppers of the affected products won't see a change: Nestle's name won't join Starbucks' on any packaging. "We do not want the consumer to perceive that Starbucks is now part of a bigger family," a Nestle source told the site. Starbucks walks away with greater distribution around the planet. As for Nestle, it's a jolt: The world's leading hot drink company's shares had been down 8% for the year, and 2017 saw sales rise at what Bloomberg calls "their weakest pace in more than two decades." Bloomberg's take: "By entering a marketing pact with Starbucks, the Swiss company is revealing the limits to growing with Nescafe and Nespresso." Reuters' assessment is that the deal will help Nestle "bulk up" in the US where it isn't as strong, allow it to expand its offerings in a ballooning Asia market, and facilitate its "shift away from junk food." The AP adds the deal is subject to regulatory approval but should close before 2018 is out. Nestle will scoop up 500 Starbucks employees as part of the process; operations will remain in Seattle.