Starbucks Corporation (NASDAQ:SBUX) To Shell Out $2.8 Billion

Posted by Beth Hart November 13, 2013 0 Comment 1113 views

As per the recent judgment Starbucks Corporation (NASDAQ:SBUX) will require to pay about $2.8 billion towards prematurely terminating a deal with the Kraft Foods Group Inc. (NASDAQ:KRFT). Kraft Foods that was providing shelf space for Starbucks coffee in grocery stores helped grow the business from mere $50 million in 1998 to almost 10 times for $500 million in 2010. The contract was supposed to last till March 2012 and then it would have renewed for 10 more years unless terminated. But Starbucks Corporation (NASDAQ:SBUX) ended the 13 year old contract earlier in March 2011, unilaterally.

Arbitrator’s Judgment

After subsequent hearings on this dispute, an arbitrator concluded that Starbucks Corporation (NASDAQ:SBUX) would require to pay the award of $2.8 billion that includes $2.23 billion in damages and $527 million in attorneys’ fees and pre-judgment interest. This payment would be directed to Mondelez International Inc. (NASDAQ:MDLZ) as it had taken over the Kraft’s grocery operation during a spin-off of North American grocery business last year in October 2012.

Company Reactions

Troy Alstead, the Chief Financial Officer of Starbucks Corporation (NASDAQ:SBUX) explained that the company believed, Kraft Foods Group Inc. (NASDAQ:KRFT) did not deliver its responsibilities and the performance of the business was suffering as a result. Hence the company unilaterally terminated the agreement with Kraft Foods Group Inc. (NASDAQ:KRFT) and is pleased that the arbitration is ended.  The CFO also noted that Starbucks will book this payment to its fiscal 2013 operating expenses. He mentioned that Starbucks Corporation (NASDAQ:SBUX) has sufficient cash on hand as well as borrowing capacity to complete the payment.

Mondelez International Inc. (NASDAQ:MDLZ) mentioned in a statement that it intends to use the cash to buy-back company’s stock. General Counsel, Gerd Pleuh said, “We’re pleased that the arbitrator validated our position that Starbucks breached our successful and long-standing contractual relationship without proper compensation.”

About Beth Hart

Beth is from New York. She has two master’s degrees and served as a lecturer in B-School. Her master’s degree is an MBA in Global Management from the University of Phoenix (2010). She has worked for small businesses, public agencies, and large corporations. She does write articles as a freelancer.

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