Starbucks goes bigger in Japan

Starbucks announced, and you can read it on the Investor relations segment of their website that they were buying the remaining 60.5 percent of Starbucks Japan, that they do not own, via a two-step tender offer process the release says. Japanese law apparently. Japan is Starbuck's second biggest market after their home market, they have been in Japan since 1996 with their partner Sazaby League, now with over 1000 stores and providing active employment for 25 thousand folks. Wow. That is pretty big, the shops must be sizeable, people must pay more in the stores than in other places. Why do I say that? Starbucks in Japan has their fourth largest store footprint, second largest by sales, higher margins as a result of bigger orders!


Sazaby League asked Starbucks for the exit (their franchise agreement expires in 2021), I am sure that the US company are pleased to own all of the brand across one of the richest countries in the world. It will be a two step tender process, as mentioned and will begin as follows, starting tomorrow:


"The purchase price for Sazaby's 39.5% stake is ¥965 per share, for a total of 55 billion Yen, or approximately 505.0 million Dollars 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."


55 billion Yen, at a rate of 108.93 Yen to the Dollar (for 39.5 percent) translates to 505 million Dollars. It hardly seems like a kings ransom, Starbucks themselves are worth 55.55 billion Dollars as at market close last evening. To buy the rest, the remaining 22 percent from the minority shareholders will be bought at a 51.8 percent premium to the first tender price. Starbucks Japan (code 2712 in Tokyo) trades at 1461, up a whopping 13.43 percent over the last month, the tender price to minorities is 1,465 Yen. Phew. Sazaby are accepting a monster discount to what the rest of the shareholders are getting, the minorities are being bought out on a 33 multiple, take the money and run. I guess to push the whole lot over the edge and with Sazaby wanting to exit (and by extension open to the discount), Starbucks bought the whole business for (22% for 44.5 billion Yen from minorities and 55 billion Yen for 39.5% from Sazaby) 99.5 billion Yen. Or 913 million Dollars.

In the release, the other one titled "Announcement Concerning Tender Offer For Shares of Starbucks Coffee Japan, Ltd." KPMG's discounted cash flow analysis came to a price of between 852 yen to 1,086 yen, whilst the average share price (that the market paid) was 1,171 yen to 1,399 yen during the period concerned. And then KPMG runs a complex model of sales and profits projections through to 2021. Always fun to see, I suspect that giving too much time to expectations sets yourself up for definite surprises, either to the down or upside.


Significant? No, not in the bigger picture, however the next moves are important for Starbucks in Japan. You can listen to the 24 minute conference call, on why Starbucks have done this -> Starbucks Conference Call Tuesday, September 23, 2014, 6:00 pm EDT. It is just a call. No presentations whatsoever. Howard Schultz on the call talks about the first store outside of North America being in Tokyo, lines around the block to taste the delicious coffee. The company is going to continue to do what they do best, continue to grow, Japan is one of the biggest brewed coffee markets in the world. Teavana premium teas are going to be unleashed on a culture that loves tea! Tech development is also going to take place, the Japanese are brilliant adopters of new tech. All in all, better to own all of it and have control.