) recently announced the closure of its previously-announced deal
to acquire Atlanta-based
Teavana Holdings, Inc.
), a specialty retailer of tea, for approximately $620 million in
cash. Teavana has now become a wholly owned subsidiary of
Teavana operated through 300 mall-based stores, which
Starbucks plans to expand. Starbucks is also planning to
establish new stand-alone Teavana neighborhood stores
domestically as well as internationally. Moreover, Starbucks
plans to open tea bars (which will create customized tea
beverages) inside these stores, which presently sell only
loose-leaf teas and related merchandise.
We believe that the collaboration of Starbucks and Teavana
provides the former a global opportunity to create a unique
retail experience in the $40 billion tea category. When Starbucks
announced the deal in mid-November, it claimed that tea is the
world's second largest beverage category that offered a large
scope for innovation, which Starbucks plans to exploit. However,
management stressed that focusing on tea does not signal a
slowdown in its core coffee business.
The acquisition is complementary with Starbucks' already
existing core tea business of Tazo tea. Starbucks sells Tazo tea
in stores as well as across the foodservice channels. Over time,
Starbucks plans to create a two-tiered business, where both the
Tazo and Teavana branded products will co-exist.
Starbucks is constantly on the lookout for new businesses that
are complementary with its core coffee offerings. Six months ago,
Starbucks acquired bakery chain La Boulange, and a year back it
bought Evolution Fresh juice stores to expand its footprint
beyond coffee. Teavana is another step in that direction.
Teavana's shareholders received $15.50 per share in cash for
the merger. The acquisition is expected to add a penny to 2013
We currently have a long-term Neutral recommendation on
Starbucks. However, the stock carries a Zacks #2 Rank (a
short-term Buy rating). Starbucks competes with
) which carries a Zacks#3 Rank (short term 'Hold' rating).
Starbucks is gaining momentum following the solid results in
fiscal 2012; regular product innovations like the at-home coffee
machine, Verismo; and great strategic deals like La Boulange,
Evolution Fresh and now Teavana.
MCDONALDS CORP (MCD): Free Stock Analysis
STARBUCKS CORP (SBUX): Free Stock Analysis
TEAVANA HOLDING (TEA): Free Stock Analysis
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