Starbucks Closes Teavana Buy - Analyst Blog
January 02 2013 - 3:30AM
Zacks
Starbucks Corporation (SBUX) recently announced
the closure of its previously-announced deal to acquire
Atlanta-based Teavana Holdings, Inc. (TEA), a
specialty retailer of tea, for approximately $620 million in cash.
Teavana has now become a wholly owned subsidiary of Starbucks.
Teavana operated through 300 mall-based stores, which Starbucks
plans to expand. Starbucks is also planning to establish new
stand-alone Teavana neighborhood stores domestically as well as
internationally. Moreover, Starbucks plans to open tea bars (which
will create customized tea beverages) inside these stores, which
presently sell only loose-leaf teas and related merchandise.
We believe that the collaboration of Starbucks and Teavana
provides the former a global opportunity to create a unique retail
experience in the $40 billion tea category. When Starbucks
announced the deal in mid-November, it claimed that tea is the
world’s second largest beverage category that offered a large scope
for innovation, which Starbucks plans to exploit. However,
management stressed that focusing on 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 the 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 that
are complementary with 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’s shareholders received $15.50 per share in cash for the
merger. 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
Buy rating). Starbucks competes with McDonald’s
Corp. (MCD) which carries a Zacks#3 Rank (short term
‘Hold’ rating).
Starbucks is gaining momentum following the solid results in
fiscal 2012; regular product innovations like the at-home coffee
machine, Verismo; and great strategic deals like La Boulange,
Evolution Fresh and now Teavana.
MCDONALDS CORP (MCD): Free Stock Analysis Report
STARBUCKS CORP (SBUX): Free Stock Analysis Report
TEAVANA HOLDING (TEA): Free Stock Analysis Report
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