Starbucks to acquire all Japan units for $913MStarbucks to acquire all Japan units for $913M

Starbucks Corp. will acquire its 1,051 coffeehouse units in Japan that operate under a joint venture in a $913 million deal, the company said Tuesday.

The acquisition aims to accelerate multichannel growth in Starbucks’ second-largest regional market.

Starbucks chairman, president and chief executive Howard Schultz said Japan is a key international market among the 65 countries where the 20,863-unit chain operates. Starbucks opened its first coffeehouse outside North America in 1996 in Tokyo’s Ginza district.

Starbucks’ international growth has largely been built on the trust and friendship of Starbucks Coffee Japan Ltd., a joint venture between the Seattle-based parent and local operator The Sazaby League, Schultz said.

Japan is one of Starbucks’ top-performing markets, generating about $1.2 billion in revenue. Same-store sales over the past three years have increased about 4 percent annually on average, despite ongoing macroeconomic challenges there.

But with the expiration of Sazaby’s retail franchise rights approaching, the Japan-based company decided to sell its stake and exit the business, Starbucks said.

A Starbucks unit in Tokyo's Meguro district. Photo: Starbucks

The acquisition will involve a two-step tender offer process, allowing Starbucks to acquire the 60.5-percent stake it does not currently own.

Under the first tender offer, scheduled to begin Sept. 26, Sazaby will sell its 39.5-percent stake for what translates to about $505 million, according to current exchange rates of Japanese yen to U.S. dollars.

After the first step is completed, a second tender offer is scheduled for Nov. 10 through Dec. 29, during which Starbucks plans to acquire the remaining 21-percent stake held by public shareholders and option holders of common stock, for a total of about $408.5 million.

After the second step, Starbucks intends to commence a cash-out procedure for any remaining outstanding shares.

Starbucks expects to have a controlling interest before the end of the first quarter of 2015 and complete the deal within the first half of the year.

Going forward, Starbucks officials see multiple opportunities for growth in Japan, not only with the coffee brand but with the company’s entire portfolio, including the Teavana tea stores and products, as well as ready-to-drink and consumer packaged goods.

“This is the start of a new chapter in our international growth strategy,” said Troy Alstead, Starbucks chief operating officer, in a call with Wall Street analysts late Tuesday. “This opens up opportunities for us, for our portfolio of brands and channel development, that we haven’t even begun to explore yet.”

Analysts hailed the deal.

"Over time, we look for this acquisition to build upon the company's already strong heritage within the coffee and tea category and support the longer-term opportunity to build the company's channel development business," said Nicole Miller Regan, senior research analyst at Piper Jaffray, in deal notes Wednesday.

David Tarantino, an analyst at Robert W. Baird & Co. agreed, calling the move “a good use of capital given that Starbucks is purchasing a highly profitable market that offers attractive growth opportunities across multiple channels/brands,” which includes Teavana and ready-to-drink beverages. He also noted that it will enable the coffee giant to leverage mobile, digital and loyalty capabilities.

Schultz said Starbucks hopes to build its digital presence in Japan, along with its Star rewards program that has won loyal fans in the U.S.

Contact Lisa Jennings at [email protected].
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