Your pound of coffee grounds is costing
An arbitrator concluded that the coffee giant must pay $2.8 billion for prematurely terminating a deal with the
The dispute dates back to March 2011, when Starbucks unilaterally ended a 13 year old deal in which Kraft sold bags of Starbucks coffee in grocery stores. If carried out, the contract would have expired in March of next year. But would have automatically renewed for another 10 years unless terminated. Acosta now sells Starbucks in stores.
“We are pleased the arbitration has ended," said Starbucks Chief Financial Officer Troy Alstead in a statement that made clear the coffee chain still believes it was in the right. "We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft." He noted, however, that the company has enough cash on hand and borrowing capacity to complete the payment. Starbucks will book the payment as a charge to its fiscal 2013 operating expenses.
Mondelez maintains that it helped grow the Starbucks grocery business from a $50 million business in 1998 to $500 million in 2010. The company announced in a statement that it plans to use the cash to buyback stock. "We're pleased that the arbitrator validated our position that Starbucks breached our successful and long-standing contractual relationship without proper compensation," said General Counsel Gerd Pleuh.
Starbucks shares were down 1.4% to $79.50 in after hours trading. Mondelez shares were up 3.3% to $33.52 and Kraft shares were up .6% to $52.25.
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