Starbucks Stock Climbs After 60% Stake Sale In China Business To Private Equity Firm — Retail Still On The Sidelines

• The coffee chain will form a joint venture with Boyu Capital for operating Starbucks in China.
• As per the deal, the enterprise value of the China business is $4 billion.
• Starbucks CEO Brian Niccol said the company’s cafes in the country will more than double in number over time.

Starbucks Corp. said on Monday that it had entered into a deal to sell a controlling stake in its China operations to private equity firm Boyu Capital, which values the business at $4 billion. Shares of the U.S. coffee chain climbed over 0.6% in after-hours trading.

The announcement caps a months-long search for a local partner in China, coming as Starbucks works to reinvigorate sales in the U.S. and other key markets.

Transection Details

China’s Boyu Capital, which focuses on growth-stage investment and buyouts, will acquire a 60% stake in Starbucks’ retail operations in China through a new joint venture with the coffee seller, the companies said in a press release. Starbucks will retain a 40% interest and continue to license the brand and intellectual property to the joint venture.

“We see a path to grow from today’s 8,000 Starbucks coffeehouses to more than 20,000 over time,” Starbucks CEO Brian Niccol said in a statement.

Turnaround Progress

Starbucks, which opened its first store in China in 1999, has faced growing pressure from lower-priced domestic competitors, including Luckin Coffee and Cotti Coffee. Globally, the company continues to face headwinds as consumers curb discretionary spending amid fragile economic conditions in several markets.

The chain is attempting a turnaround under Niccol, who joined last year after helming Chipotle Mexican Grill, and has cut costs, boosted staff at its U.S. stores, and refreshed its menu and cafe designs.

The company reported higher-than-expected net revenue for its fiscal fourth quarter last week, including same-store sales growth for the first time in nearly two years, as well as strong international sales. Profit, however, fell short of analysts’ average target.

What Is Retail Investors’ View?

On Stocktwits, the retail sentiment for SBUX was ‘bearish’ as of late Monday, unchanged from the previous day, with ‘extremely high’ message volume. However, there were some optimistic comments trickling in following the China news.

“$SBUX 60%/40%  Boyu deal with plans to increase SBUX coffee houses 2 fold over time plus billions in cash for buy in coming to SBUX,” said one user. “100 soon.”

“$SBUX I bet on this CEO,” said another, alluding to the turnaround progress.

SBUX shares have declined 11.3% year-to-date.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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