Starbucks (SBUX) is acquiring the Tea Company, owned by Teavana Holdings (TEA) for a value of about $620 million. This is the biggest acquisition ever for Starbucks and would take the company beyond its core area of coffee and namesake shops.
Though this can be interpreted as good news, it should give investors pause. Growth through acquisition is expensive and has historically not worked out well for the acquiring company. Investors should expect the combination of firms through acquisition to result in a host of problems from incompatible cultures to elusive synergies. Investors should stay away from Starbucks given its current strategy and valuations in favor of other related stocks.
It should also be noted that Starbucks’ expansion into more products and retail consumer packaged goods is not innovative in today’s markets. McDonald’s (MCD) is doing it too! McDonald’s is jumping into coffee mass retail, like many other restaurants and coffee makers. It is parlaying its McCafe brand into products you can find in your grocery store. Thus, Starbucks is not in any way blazing new trails or creating new markets with this move into tea.
Takeover after Takeover
Since 2008, when Shultz returned as CEO to the company, the company has made moves to sustain the firm’s revenue growth with energy drinks, juice, instant coffee, a single serve brewer and food that it sells in shops and grocery stores. Starbucks has also dropped the word coffee from its logo. To continue reading, click here.