Nestle SA and Starbucks Corp. are joining forces to rejuvenate their coffee empires.
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 US chain's packaged coffees and teas around the world, tying a premium brand to Nestle's global distribution muscle.
Nestle shares rose 1.1 percent as of 12:07pm in Zurich. The stock has dropped about 9 percent this year.
While speaking about Nestle and Starbucks deal, an analyst of Bank Vontobel AG said that this partnership will give a tough time to JAB.
"This will be his first big M&A test". Nestle has reportedly struggled for years with its own products, like Nespresso and Dolce Gusto, in the US.
The investment of the European billionaire family Reimann has spent almost $30 billion for building a coffee empire by taking up the assets of companies like Keurig Green Mountain and Peet's.
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"This historic deal is part of our ongoing efforts to focus and evolve our business to meet changing consumer needs, and we are proud to work alongside a company that is committed to our shared values", Johnson said. The agreement adds prospects for growth outside of North America, where Starbucks outlets are less prevalent. Marking the third largest transaction in Nestle's 152-year history, the Swiss food and drink company is spending over $7 billion for the rights to market and sell Starbucks products. It will not buy any industrial assets as part of the deal, but could step in to produce in markets where Starbucks is not present.
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.
He also added that the price may seem expensive, but the investment may pay off within three to four years.
"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.
The chain's executive chairman, Howard Schultz, said in Milan on Monday that his vision for Starbucks came after a trip to Milan in 1983. "Both Starbucks and Nestle do so very strongly".