Starbucks Buys Teavana for $620 Million

SEATTLE, Wash.

Starbucks acquired Teavana Holdings this week in a strategic move to expand its tea retail presence at top-tier malls nationwide. Next up are “high-profile” neighborhood lounges, the first of which opens in Seattle Friday.

“We believe the tea category is ripe for reinvention and rapid growth. The Teavana acquisition now positions us to disrupt and lead, just as we did with espresso starting three decades ago,” said Howard Schultz, Starbucks chairman, president and ceo. “Teavana’s world-class tea authority, coupled with the romance and theater of the retail experience that is the heart and soul of Starbucks heritage, will create a differentiated customer experience and business opportunity that delivers immediate value to shareholders. This complements our existing Tazo brand and gives us the unique opportunity to create a two-tiered market position.”

In its release, Starbucks writes that its “investment in Teavana is matched by its commitment to continue to grow the Tazo business — giving Starbucks a two-tiered market position for tea. Starbucks plan is to define a new elevated platform of tea experience and education, and for both the Teavana and Tazo brands to grow and complement one another while at the same time elevating the entire category through a combination of expertise and assets.”

According to the company, the $620 million acquisition (Starbucks paid $15.50 per share) will “jumpstart the next wave of growth in this dynamic category, leveraging Starbucks core competencies of real estate, design and store operations and integrating these with Teavana’s world-class tea authority, global sourcing capabilities, merchandising and best-in-class retail store unit economics.”

Powered by Starbucks existing infrastructure, Starbucks plans to continue to grow and extend Teavana’s already-successful 300 mall-based stores as well as add a high-profile neighborhood store concept that will accelerate Teavana’s domestic and global footprint.

“By contributing deep tea expertise, global sourcing capabilities and a passion for the category that is second to none in our industry, we believe we can deliver an elevated tea experience together with Starbucks,” said Andrew Mack, ceo and co-founder of Teavana.

Mack, who retained much of the company’s stock following a July 2011 Initial Public Offering, agreed to continue managing Teavana’s day-to-day operations. “After growing Teavana for fifteen years, we are thrilled that Starbucks will be able to truly fulfill our mission of bringing premium tea to millions of people on a global platform. It is with great respect for what Howard and his team have built that we join the Starbucks family,” he said.

Mack and his wife Nancy self-founded the Atlanta-based company in 1997.  Financial reports show the typical customer buys an average $40 in loose leaf tea and tea ware per visit. Individual stores gross more than $1 million annually and average about $900 per square foot in retail sales. Teavana currently operates 300 company owned stores in the U.S. and Canada, with 19 franchised stores predominantly in Mexico. Teavana acquired 49-store Canada-based Teaopia this spring. The company expects to earn between $222 and $231 million during fiscal 2012.  Revenue was $168 million in fiscal 2011. Sales were up 38% in the last quarter.

According to the release, in calendar 2013, Starbucks will integrate its unique assets — including its leading position in social and digital media, its ten million member global loyalty program, card and mobile payment platforms — with the Teavana customer experience to expand Teavana’s current mall-based store footprint with a comprehensive design strategy that will include new Teavana neighborhood locations in markets across North America and around the world. Teavana recently opened its first store in the Middle East in partnership with Starbucks existing joint venture partner Alshaya, and has plans to enter new, high-consumption tea markets around the world in the years ahead.”

“The acquisition of Teavana supports our growth strategy to innovate with new products, enter new categories, and expand into new channels of distribution,” said Jeff Hansberry, president, Channel Development and Emerging Brands for Starbucks, who will assume leadership of the new subsidiary. “Evolution Fresh, La Boulange and now Teavana demonstrate how Starbucks will add brands that strengthen our core offering and create a rich ecosystem of experiences with shared values, mutual efficiencies and complementary characteristics, thus forming tangible examples of the success of the Starbucks Blueprint for Growth and a differentiated health and wellness offering in the marketplace.”

About 70% of Teavana's shareholders have approved the merger 'by written consent,' according to Starbucks which experienced a decline of 3% to $48.84 in its share price following the announcement.  Teavana's shares surged 52% to $15.45. The deal is expected to close by year-end.

Source: Starbucks, Seeking Alpha, Atlanta Journal-Constitution

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