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