Looking for new growth avenues beyond coffee,
Starbucks Corporation
(
SBUX
) has entered into a definitive agreement to acquire
Atlanta-based
Teavana Holdings, Inc
. (
TEA
), a specialty retailer of tea for approximately $620 million in
cash.
Teavana operates through 300 mall-based stores, which
Starbucks plans to expand as well as establish new stand-alone
Teavana neighborhood stores domestically as well as
internationally. Moreover, Starbucks plans to open tea bars
(which will make customized tea beverages) inside these stores,
which presently sell only loose-leaf teas and related
merchandise.
We believe that the coming together of Starbucks and Teavana
provides the former a global opportunity to create a unique
retail experience in the $40 billion tea category. Starbucks
claims that tea is the world's second largest beverage category
with huge scope for innovation, which it plans to exploit.
Management stressed though that the push into 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 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,
which complement 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 shareholders will receive $15.50 per share in cash for
the merger, which has already been approved by 70% of Teavana
shareholders through written consent. Per the agreement, which is
expected to complete by calendar year end, Teavana will become a
wholly-owned subsidiary of Starbucks. The acquisition is expected
to add a penny to 2013 earnings.
Our Recommendation
We currently have a long-term Neutral recommendation on
Starbucks. However, the stock carries a Zacks #2 Rank (a
short-term Hold rating) which implies a short term buy rating.
Starbucks is gaining momentum with solid results in fiscal 2012;
regular product innovations like the recently launched at-home
coffee machine, Verismo; and great strategic deals like La
Boulange, Evolution Fresh and now Teavana.
STARBUCKS CORP (SBUX): Free Stock Analysis
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TEAVANA HOLDING (TEA): Free Stock Analysis
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