SEATTLE, US –– Starbucks Corporation announced on September 23, 2014, that it will acquire the remaining 60.5% share of Starbucks Coffee Japan, Ltd. (Starbucks Japan) that the company currently does not own through a two-step tender offer process, further elevating Starbucks growth and innovation in its second-largest market when measured by retail store sales.
The acquisition positions Starbucks to accelerate growth across multiple channels in Japan, including the potential introduction of new concepts, such as Teavana. Before the end of the first quarter of fiscal year 2015, Starbucks expects to have a controlling interest and will consolidate Starbucks Japan into the company’s results. Starbucks expects this transaction will be immediately accretive on a non-GAAP basis when excluding certain items noted later in this release.
Starbucks Japan is a joint venture between Starbucks and Sazaby League that operates Starbucks branded retail stores in Japan. Since the inception of their joint venture agreement in 1995, Starbucks and Sazaby together introduced the coffeehouse experience to Japanese customers and built one of Starbucks top-performing markets globally. Starbucks Japan’s business today is marked by strong brand recognition and deep customer loyalty built through delivering an unparalleled Starbucks Experience. Starbucks stores have been remarkably consistent performers despite ongoing macro-economic challenges in Japan.
Over the summer, Sazaby approached Starbucks about selling its Starbucks Japan ownership stake to Starbucks and exiting the business in a smooth and orderly manner in advance of the expiration of Starbucks Japan’s retail franchise rights. Starbucks credits Sazaby with establishing and growing Starbucks Japan’s healthy business and is excited for this next chapter in Starbucks Japan’s evolution which will leverage existing infrastructure, systems and expertise to continue disciplined retail growth and expanded presence in other channels.
The first step in the two-step tender offer process begins with Sazaby tendering its shares, which will commence on September 26th. The purchase price for Sazaby’s 39.5% stake is ¥965 per share, for a total of ¥55 billion, or approximately $505.0 million with Japanese Yen converted into US Dollars at a reference conversion rate of 108.93 JPY to USD. Upon final settlement of this first tender offer step, which is anticipated to occur during the middle of Starbucks first quarter of fiscal 2015, Starbucks will own a controlling 79% interest in Starbucks Japan.
Shortly after the settlement of the first step in the tender offer and following the release of Starbucks Japan’s second quarter earnings results, Starbucks will initiate the second step for the remaining 21% ownership interest held by public shareholders and option holders of Starbucks Japan’s common stock. The tender offer purchase price for this second step is ¥1,465 per share, for a total of ¥44.5 billion, or approximately $408.5 million at the above referenced conversion rate. The public price per share of ¥1,465 represents an 11.6% premium to the 30-day average price of Starbucks Japan’s stock, a 4.7% premium to the closing price on Monday, September 22, and a 51.8% premium to the price Starbucks is paying Sazaby for its shares.
All steps of this tender offer process have been unanimously approved by the boards of directors of Starbucks, Sazaby and Starbucks Japan, and the transactions are expected to be fully completed during the first half of calendar 2015.
The consolidation of Starbucks Japan’s financial results into Starbucks financials will commence after the final settlement of the first step of the tender offer, at which time Starbucks will record the required purchase
accounting adjustments, such as the step-up in fair value of Starbucks existing ownership interest in Starbucks Japan, as well as newly acquired tangible and intangible assets. This information will be included in Starbucks first quarter of fiscal 2015 externally reported financial results.
Financial targets for Starbucks fourth quarter and fiscal year 2014 provided in conjunction with Starbucks 2014 third quarter earnings on July 24th are unchanged as a result of this transaction. Starbucks expects this transaction to be slightly accretive to the company’s fiscal year 2015 non-GAAP financial results, when excluding: 1) an anticipated acquisition-related gain in the first quarter of fiscal 2015 resulting from a fair value adjustment of Starbucks current 39.5% ownership interest in Starbucks Japan; 2) ongoing amortization expense of significant acquired intangible assets related to the transaction; and 3) transaction and integration costs.
