Economy
Nestle Pays $7.15b to Market Starbucks Products
By Modupe Gbadeyanka
A licensing deal worth $7.15 billion has been sealed between Nestle and Starbucks Corporation, allowing Nestle have the perpetual right to market Starbucks’ consumer and foodservice products globally outside of Starbucks coffee shops, which are not part of the transaction.
“This transaction is a significant step for our coffee business, Nestlé’s largest high-growth category,” said Mr Mark Schneider, CEO, Nestlé.
“With Starbucks, Nescafé and Nespresso we bring together three iconic brands in the world of coffee.
“We are delighted to have Starbucks as our partner. Both companies have true passion for outstanding coffee and are proud to be recognized as global leaders for their responsible and sustainable coffee sourcing. This is a great day for coffee lovers around the world,” he added.
“This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestlé,” President and CEO of Starbucks, Mr Kevin Johnson, stated.
“This historic deal is part of our ongoing efforts to focus and evolve our business to meet the changing consumer needs, and we are proud to work alongside a company that is committed to our shared values,” he added.
Business Post reports that the two companies will work closely together on innovation and go-to-market strategies to bring the best coffee to customers around the world as the deal allows Nestlé to capture exciting new growth opportunities in the rest of the world with Starbucks premium products. As a complete provider of coffee solutions, Nestlé will accelerate growth in out-of-home channels.
However, the agreement is subject to customary regulatory approval and is expected to close by the end of 2018. The agreement excludes Ready-to-Drink products and all sales of any products within Starbucks coffee shops.
As part of this transaction, Starbucks will receive an up-front cash payment of $7.15 billion for a business which generated annual sales of $2 billion.
But the transaction does not include the transfer of any fixed assets, which facilitates a smooth and efficient integration and Nestlé expects this business to contribute positively to its earnings per share and organic growth targets as from 2019.
Nestlé’s ongoing share-buyback program will remain unchanged, the management said, but approximately 500 Starbucks employees will join the Nestlé family to drive performance of the existing business and global expansion. Operations will continue to be located in Seattle.
Meanwhile, notable credit rating company, Moody’s, has rated the Nestlé’s Starbucks deal as “credit negative,” changing its outlook on Nestlé’s Aa2 rating to negative from stable.
It noted that the deal will be fully funded with debt, increasing Nestlè’s reported gross debt by approximately 20 percent.
Moody’s said because Nestle confirmed that its ongoing CHF20 billion share buyback to be completed by 2020 will not be amended following the transaction, the firm’s credit metrics, which are already weak for its current Aa2 rating, will deteriorate.
“We expect Nestlé’s ratio of retained cash flow to net debt to drop to below 20% in 2019 and 2020 from 29 percent in 2017, which is below our 30 percent quantitative guidance for its Aa2 rating, and its ratio of funds from operations to net debt to decline to 36 percent -40 percent from around 56 percent,” Moody’s said in its report obtained by Business Post.
However, Moody’s said in spite of the negative credit implications, the agreement is positive from an industrial standpoint because it will reinforce Nestlé’s position in the coffee segment, which is growing faster and with higher profitability than the group’s average.
In 2017, Nestlé’s powdered and liquid beverage division, which includes coffee, grew by 3.6 percent compared with the group’s consolidated organic sales growth of 2.4 percent and the division’s underlying trading operating margin was 21.9 percent compared with a consolidated 16.4 percent.
The Starbucks’ business included in the agreement generated approximately $2.0 billion of revenue in 2017 and Nestlé could rapidly expand it, especially outside the US given its global distribution platform.
Moreover, the deal does not entail any fixed-asset transfer, which should limit execution risk and reduce integration costs.
The agreement is consistent with Nestlè’s strategy to reach mid-single-digit organic sales growth in 2020 and improve its underlying operating margin to 17.5 percent -18.5 percent by 2020 from 16 percent in 2016, reflecting accelerating organic sales growth via product innovation and renovation; a CHF2.0-CHF2.5 billion cost-savings programme; and the adjustment of the group’s product portfolio by disposing of low-growth, low margin segments and by investing in more attractive ones. Recent transactions include the disposal of the US confectionery business for $2.8 billion in January 2018, the acquisition of Canadian nutritional company Atrium for $2.3 billion in December 2017 and the purchase of a 68 percent stake in premium coffee retailer Blue Bottle Coffee in September 2017. The company is also considering the disposal of Gerber’s life insurance business.
By Dipo Olowookere
The local stock market firmed up by 1.13 per cent on Friday as appetite for Nigerian stocks remained strong.
Investors reacted well to the 2026 budget presentation of President Bola Tinubu to the National Assembly yesterday, especially because of the more realistic crude oil benchmark of $64 per barrel compared with the ambitious $75 per barrel for 2025. This year, prices have been between $60 and $65 per barrel.
Business Post observed profit-taking in the commodity and energy sectors as they respectively shed 0.14 per cent and 0.03 per cent.
But, bargain-hunting in the others sustained the positive run, with the consumer goods index up by 3.82 per cent.
Further, the industrial goods space appreciated by 1.46 per cent, the banking counter improved by 0.08 per cent, and the insurance industry gained 0.04 per cent.
As a result, the All-Share Index (ASI) increased by 1,694.33 points to 152,057.38 points from 150,363.05 points and the market capitalisation chalked up N1.080 trillion to finish at N96.937 trillion compared with Thursday’s closing value of N95.857 trillion.
A total of 34 shares ended on the advancers’ chart, while 24 were on the laggards’ log, representing a positive market breadth index and bullish investor sentiment.
Austin Laz gained 10.00 per cent to close at N2.42, Union Dicon also jumped 10.00 per cent to N6.60, Tantalizers increased by 9.80 per cent to N2.69, Aluminium Extrusion improved by 9.78 per cent to N12.35, and Champion Breweries grew by 9.71 per cent to N16.95.
Conversely, Sovereign Trust Insurance dipped by 7.42 per cent to N3.87, Royal Exchange lost 6.84 per cent to trade at N1.77, Omatek slipped by 6.84 per cent to N1.09, Eunisell depreciated by 5.88 per cent to N80.00, and Eterna dropped 5.63 per cent to close at N28.50.
Yesterday, traders transacted 1.5 billion units worth N21.8 billion in 25,667 deals compared with the 839.8 million units sold for N32.8 billion in 23,211 deals in the preceding session, showing a surge in the trading volume by 76.61 per cent, an uptick in the number of deals by 10.58 per cent, and a shrink in the trading value by 33.54 per cent.
By Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Adedapo Adesanya
It was not a good day for the Nigerian Naira at the two major foreign exchange (FX) market on Friday as it suffered a heavy loss against the United States Dollar at the close of transactions.
In the black market segment, the Naira weakened against its American counterpart yesterday by N10 to quote at N1,485/$1, in contrast to the N1,475/$1 it was traded a day earlier, and at the GTBank forex counter, it depreciated by N2 to settle at N1,467/$1 versus Thursday’s closing price of N1,465/$1.
In the Nigerian Autonomous Foreign Exchange Market (NAFEX) window, which is also the official market, the nation’s legal tender crashed against the greenback by N6.65 or 0.46 per cent to close at N1,464.49/$1 compared with the preceding session’s rate of N1,457.84/$1.
In the same vein, the local currency tumbled against the Euro in the spot market by N2.25 to sell for N1,714.63/€1 compared with the previous day’s N1,712.38/€1, but appreciated against the Pound Sterling by 73 Kobo to finish at N1,957.30/£1 compared with the N1,958.03/£1 it was traded in the preceding session.
The market continues to face seasonal pressure even as the Central Bank of Nigeria (CBN) is still conducting FX intervention sales, which have significantly reduced but not remove pressure from the Naira. Also, there seems to be reduced supply from exporters, foreign portfolio investors and non-bank corporate inflows.
President Bola Tinubu on Friday presented the government’s N58.47 trillion budget plan aimed at consolidating economic reforms and boosting growth.
The budget is based on a projected crude oil price of $64.85 a barrel and includes a target oil output of 1.84 million barrels a day. It also projects an exchange rate of N1,400 to the Dollar.
President Tinubu said inflation had plunged to an annual rate of 14.45 per cent in November from 24.23 per cent in March, while foreign reserves had surged to a seven-year high of $47 billion.
Meanwhile, the cryptocurrency market was dominated by the bulls but it continues to face increased pressure after million in liquidations in previous session over accelerating declines, with Dogecoin (DOGE) recovering 4.2 per cent to trade at $0.1309.
Further, Ripple (XRP) appreciated by 3.9 per cent to $1.90, Cardano (ADA) rose by 3.5 per cent to $0.3728, Solana (SOL) jumped by 3.4 per cent to $126.23, Ethereum (ETH) climbed by 2.9 per cent to $2,982.42, Binance Coin (BNB) gained 2.0 per cent to sell for $853.06, Bitcoin (BTC) improved by 1.7 per cent to $88,281.21, and Litecoin (LTC) soared by 1.2 per cent to $76.50, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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