"It is hard to say much about the valuation. Starbucks Corp. ( NASDAQ: SBUX) is selling a 60% piece of its operations in China. It gets $4 billion and long-term license fees. This values the enterprise at $13 billion. The buyer, Boyu Capital, is not in the coffee chain business. (Starbucks calls the deal a "joint venture.") The deal gets crazier."
"The deal gets crazier. Luckin Coffee, which has over 20,000 locations in China, dominates the market for coffee stores. Boyu is supposed to boost the Starbucks store count from 8,000 to 20,000. Where is the management, and what is the strategic plan to get there? It is what Starbucks calls a "shared vision." Brian Niccol, Starbucks board chair and chief executive officer, said, "Together we will write the next chapter of Starbucks' storied history in China.""
"The deal gets even crazier. Starbucks has a market cap of $92 billion. China is its second-largest market. Presumably, Starbucks is an expert at the coffee shop business, but it is not an expert in China. Starbucks has been defeated in China, 26 years after starting its operations there. Once again, after 26 years of experience, Starbucks is not an expert in the China coffee store business. Over 26 years, it failed to learn anything other than it cannot run coffee shops in China."
Starbucks sold a 60% stake in its China operations to Boyu Capital for $4 billion plus long-term license fees, implying a $13 billion enterprise valuation. Boyu is not a coffee-chain operator, yet plans to expand Starbucks stores from about 8,000 to 20,000 amid competition from Luckin Coffee’s 20,000-plus locations. China is Starbucks’ second-largest market and posted better comparable-store sales than global or U.S. results in the most recent quarter. Management in Seattle has pursued U.S.-focused operational changes, including uniforms, menu reductions, staff cuts, and shorter wait-time goals, with mixed outcomes reported.
Read at 24/7 Wall St.
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