Nestle near to Starbucks's store-drinks unit deal

Zurich

NESTLE SA is close to a deal for Starbucks Corp's business that sells coffee beans and drinks in supermarkets, according to a person familiar with the situation.

An agreement will probably be announced on Monday, according to the person, who didn't want to be identified as it isn't public yet. Terms were not immediately available. The deal would not involve the Seattle-based company's cafes.

The transaction could generate about US$3.8 billion in after-tax cash proceeds for Starbucks, according to Andrew Charles, an analyst at Cowen.

The first tie-up with a major rival in coffee underlines Nestle's efforts to capture more upscale java drinkers in the US, where the maker of Nespresso and Nescafe has been outpaced by JAB Holding Co.

Starbucks holds the crown in the US$13.8 billion US coffee market, while Nestle ranks fifth behind Green Mountain and Kraft Heinz, according to Euromonitor.

Starbucks's consumer-packaged-goods business, which also includes some ready-to-drink beverages, generated 8 per cent of the company's sales, or about US$1.8 billion, in the 2017 fiscal year. The unit could be worth about three times its sales, estimates Warren Ackerman, an analyst at Societe Generale.

Nestle last year added niche brands Blue Bottle Coffee and Chameleon Cold-Brew to expand its portfolio. Nespresso introduced a machine that's more attuned to Americans' preference for bigger cups of joe three years ago.

Swiss financial blog Inside Paradeplatz reported the deal earlier on Friday. BLOOMBERG