Starbucks to Buy Teavana for $620 Million

Starbucks to Buy Teavana for $620 Million

4:28 p.m. | Updated

As it continues to move beyond lattés and Frappuccinos, Starbucks is betting that tea will be its next big hit.

The coffee colossus agreed on Wednesday to buy Teavana, a publicly traded seller of high-end teas, for $ 620 million in cash. The deal is Starbucks’ biggest takeover to date, more than six times bigger than its acquisition of Bay Bread earlier this year.

Under the terms of the transaction, Starbucks will pay $ 15.50 a share, an enormous 53 percent premium to Teavana’s closing price on Tuesday.

Now it appears that tea –— specifically Teavana’s loose-leaf offerings — is the next major field to conquer. Starbucks estimates the tea market at about $ 40 billion and growing by double digits. It already has a presence in the sector at the slightly lower end with its Tazo brand.

Starbucks is looking to expand its newest acquisition by capitalizing Teavana’s extensive distribution channels. Howard Schultz noted in an interview that Teavana’s stores generated $ 3 for every dollar invested in them, and Starbucks has big plans for rolling out more stores and tweaking the model, including locales. All but one of Teavana’’s 300 stores are in malls.

“Our core competency in terms of real estate and design is in urban neighborhoods around the world, and we see lots of opportunity for Teavana to live in neighborhoods throughout the country and beyond,”” Mr. Schultz said.

Starbucks also plans to add tea bars to Teavana stores, which currently sell only premium bulk, loose tea. ““We can create very unique brewed teas — customized hot and cold beverages analogous to the espresso bars we introduced in the mid-’80s– and do for tea what we did for coffee,”” Mr. Schultz said. He added that Tazo will not be sold in Teavana stores, but that the two brands may be sold in other retail outlets.

Starbucks has a good amount of financial firepower to deploy for its acquisitions. As of Sept. 30, the company had $ 1.2 billion in cash and equivalents on its books as of Sept. 30, though it also carried about $ 550 million in long-term debt.

The transaction has the backing of Andrew Mack, Teavana’s co-founder and chief executive, and a buyout fund associated with the private equity firm Apax Partners; together, the two own just over 70 percent of the company.
The deal is expected to close by the end of the year, pending regulatory approval.

Starbucks was advised by the law firm Cravath, Swaine & Moore, while Teavana was counseled by DLA Piper.


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