Starbucks to buy out Japanese partner for $913 million

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Starbucks said Tuesday it will take full ownership of its Japanese joint venture for $913 million, buying out its longtime partner and increasing its presence in its second-largest market by store sales. The move comes as the Seattle coffee giant increasingly banks on international growth.

By Ángel González

Starbucks announced Tuesday that it will take ownership of its Japanese joint venture. This Tokyo store is just one of the more than 1,000 Starbucks cafes in Japan.

Starbucks said Tuesday it will take full ownership of its Japanese joint venture for $913 million, buying out its longtime partner and increasing its presence in the coffee giant’s second-largest market by store sales.

The move comes as the Seattle company increasingly banks on international growth. Starbucks said the purchase will help it expand in Japan and more quickly introduce new products and retail formats — from its tea brand, Teavana, to ready-to-drink beverages sold in grocery stores, and even drive-through stores, which have proved successful in the U.S.

Japan was the home of the first Starbucks outside of North America. Now the island nation has more than 1,000 Starbucks cafes, with some of the highest profit margins seen by the company, and generates about $1.2 billion in revenue, executives said in a conference call about the deal.

Despite Japan’s sluggish economic performance in the past few years, Starbucks’ results there have remained strong.

“Full ownership in this market is the right approach for the future,” said Chief Operating Officer Troy Alstead in a conference call with analysts.

Dan Geiman, an analyst with McAdams Wright Ragen, says that the acquisition will boost the bottom line, “probably accelerating over time” as the company deploys its expertise in the grocery-aisle sector and opens new retail formats.

The purchase surpasses in size Starbucks’ $616 million takeover of Teavana in 2012, and is the largest made by the coffee retailer.

But it’s not the first time Starbucks has bought out a partner to tighten its grasp on an important market. In 2006 it took over the majority stake owned by a private equity firm and other partners in the company that ran its Beijing and Tianjin operations.

Starbucks will acquire the 60.5 percent it doesn’t own in its Japanese joint venture in a two-part process.

Starbucks will first buy the 39.5 percent stake owned by Sazaby League, a large Tokyo-based retailer, for $505 million, gaining control of the joint venture before the end of the year.

The remaining 21.5 percent of the joint venture, which is publicly traded, will be purchased next year for $408.5 million, a price that reflects an 11.6 percent premium to the 30-day average of the joint venture’s stock. It’s also 51.8 percent more than what Starbucks will pay Sazaby for each share. The process is expected to conclude in the first half of 2015.

The deal began taking shape when Sazaby told Starbucks it wanted to cash out of the business. The license agreement that underpins the joint venture was scheduled to expire in 2021, and there was no provision for automatic renewal, Starbucks said.

The transaction won’t change Starbucks’ financial targets for 2014, the company said. But it will provide an immediate bump to its 2015 financial results, executives said in a conference call.

Alstead said Starbucks will fund its purchase mostly from its “substantial” offshore cash, taking on “minimal” additional debt.

The joint venture, founded in 1995, employs more than 25,000 people.

Ángel González: 206-464-2250 or [email protected].

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