Starbucks Acquisition
FIN411 Investments Prof A. Knyazeva
Dejan Jozic
Optional Assignment #2 due 12/13/2012
Based on the article provided to us as well as the analysis of funds Starbucks (SBUX¹) and Teavana (TEA²), and further analysis performed through the review of the market data, it appears that the market has already adjusted to the news relating to the acquisition of Teavana by the Starbucks Corporation. As such, if one was to react of the acquisition news and tried making abnormal profits from this announcement, they would be consider reactive to the news but being little bit late.
Starbucks announcement to buy Teavana, seems to be for a much lower price than what investors paid during Teavana's IPO less than two years ago³. By paying $15.50 per share in cash, or over 40% lower than Teavana's IPO price in 2011, Starbucks acquired a company that can easily be expanded globally. This could provide significant benefits to Starbucks shareholders. Starbucks could gain due to its recent expansion into India and presence in other international areas where tea is the predominant drink. Also, Starbucks' other recent purchases of complementary businesses that seem more expensive than Teavana, and its solid balance sheet, seem to outweigh the risks that come with the hefty price tag of $620 million. Teavana's common stock is down over 44% since its initial public offering in July 2009, compared to a gain of about 10% for the S&P 500 over the same period.
While the acquisition is not cheap, compared to other recent purchases made by Starbucks it seems to be a bargain. Prior to the Teavana purchase, Starbucks bought a San Francisco-based bakery for $100 million, La Boulange. It had 19 stores at the time of the deal, which is slightly over $5 million per store. Teavana had 301 company-owned stores thus the price per Teavana store that Starbucks paid is significantly lower at $1.94 million per store (price of $620 million divided by 320 stores). The purchase
Dejan Jozic
Optional Assignment #2 due 12/13/2012
Based on the article provided to us as well as the analysis of funds Starbucks (SBUX¹) and Teavana (TEA²), and further analysis performed through the review of the market data, it appears that the market has already adjusted to the news relating to the acquisition of Teavana by the Starbucks Corporation. As such, if one was to react of the acquisition news and tried making abnormal profits from this announcement, they would be consider reactive to the news but being little bit late.
Starbucks announcement to buy Teavana, seems to be for a much lower price than what investors paid during Teavana's IPO less than two years ago³. By paying $15.50 per share in cash, or over 40% lower than Teavana's IPO price in 2011, Starbucks acquired a company that can easily be expanded globally. This could provide significant benefits to Starbucks shareholders. Starbucks could gain due to its recent expansion into India and presence in other international areas where tea is the predominant drink. Also, Starbucks' other recent purchases of complementary businesses that seem more expensive than Teavana, and its solid balance sheet, seem to outweigh the risks that come with the hefty price tag of $620 million. Teavana's common stock is down over 44% since its initial public offering in July 2009, compared to a gain of about 10% for the S&P 500 over the same period.
While the acquisition is not cheap, compared to other recent purchases made by Starbucks it seems to be a bargain. Prior to the Teavana purchase, Starbucks bought a San Francisco-based bakery for $100 million, La Boulange. It had 19 stores at the time of the deal, which is slightly over $5 million per store. Teavana had 301 company-owned stores thus the price per Teavana store that Starbucks paid is significantly lower at $1.94 million per store (price of $620 million divided by 320 stores). The purchase