Starbucks to pay Kraft $2.8 billion in grocery dispute

Starbucks pays out $2.8 billion to Mondelez International, Kraft's parent company, after breaching contract to take back their packaged coffee business from Kraft.
Posted By Sonali Basak  |  Nov. 13, 2013 at 11:25 AM
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Nov. 13 (UPI) -- Kraft wasn't too happy when Starbucks moved its packaged coffee business away from them, and now Starbucks is paying a hefty fee of $2.8 billion to Kraft for breaking the contract. This is a higher fee than Wall Street expected.

The company will pay $2.23 billion in damages to Kraft parent company Mondelez International, and more than $500 million in interest and attorney's fees.

Kraft sold bags of Starbucks coffee in grocery stores beginning in 1998. But Starbucks broke the 13-year-old contract three years early in 2011 and started selling to grocery stores through Acosta Inc. Kraft generated $50 million yearly in revenue from the sales, and said Starbucks should have to pay fair values for the service.

Starbucks said that Kraft had not delivered on responsibilities to the brand as per the agreement, and disagreed with the arbitrator on the payout.

"Taking our packaged coffee business back from Kraft was the right decision for Starbucks, our brand and our shareholders," said Troy Alstead, Starbucks chief financial officer, in a statement.

The company reported enough cash on hand to pay out the settlement, and will add the loss to their 2013 fiscal calendar, restating their fourth-quarter earnings. They had reported revenues of $3.8 billion in their latest quarter.

Investors say they're glad to have the debacle in the past. Shares of Starbucks slid in after-hours trading Tuesday, but inched back up Wednesday. Shares of Mondelez International rose almost 2 percent to above $33 by mid-morning Wednesday.

[Bloomberg] [Forbes] [Chicago Tribune] [MarketWatch]

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