Nestlé Group acquires Starbucks Corporation

: mergers and acquisitions

Abstract

This paper will analyze the possibility of creating additional shareholder value through mergers and acquisition between Nestlé Group and Starbucks Corporation at the end of the first quarter of 2013. Nestlé, the current market leader, has been under attack on its position as number one in the industry. At the same time, Starbucks has established itself as the leading speciality coffee shop chain worldwide. By using Discounted Cash Flow, a Dividend Discounted model and Relative Valuation, both companies are firstly valued individually and the result is compared to the performance of the stock over the past years. The analysis suggests that Nestlé is valued fairly by the market at the time of study while Starbucks is undervalued by almost 40%. A valuation of the combined company reveals that there are considerable opportunities for additional value creation through a merger. Based on the analysis and the valuations performed, the paper concludes that Nestlé should proceed with an acquisition. The deal will be presented to Starbucks’ shareholders in the form of a public advertisement for the outstanding shares of the company as a friendly tender offer. The bidding price will be USD 72,50 per share, representing a 25,41% premium over the market price at time of this study. Nestlé will finance the all cash deal by using existing cash reserves and by raising new debt, in line with the company’s acquisition history.

Date of Award	19 Feb 2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Carlos Tudela Martins (Supervisor)