Shares of coffee chain Starbucks (SBUX) are rising in pre-market trading amid news that its China business has attracted a valuation of $10 billion. The news was first reported by CNBC, citing people familiar with the matter. Potential bidders include Asia’s private equity firms Centurium Capital and Hillhouse Capital, as well as American companies Carlyle Group (CG) and KKR & Co. (KKR).
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Starbucks initiated the formal process of inviting bids for its China operations in May. Since then, about 30 Chinese and foreign private equity firms have submitted non-binding proposals for acquiring a stake in Starbucks’ China operations. The bids value the business between $5 billion to $10 billion, attaching a premium price to a business marred by domestic competition and macroeconomic challenges. Last month, Starbucks CEO Brian Niccol stated that the company was garnering a “lot of interest” from potential parties for a minority stake in its China operations.
Starbucks Wants to Retain a Controlling Stake in China
Despite ongoing challenges and a significant loss of market share to China’s Luckin Coffee (LKNCY), Starbucks is not seeking a full sale of its China operations. The company sees “significant long-term potential in China and is evaluating the best ways to capture the future growth opportunities.” Starbucks is seeking like-minded partners, who share its vision of offering premium coffeehouse experience to customers.
According to the report, Starbucks could retain a 30% stake in its China operations and sell the remainder to selected parties, with each holding less than a 30% interest. The report stated that Starbucks is currently reviewing and evaluating the offers, deal structure proposals, and value creation pitches from the bidders. The shortlisting process could take up to two months, but the entire deal would be completed only by the end of this year.
Is SBUX a Good Stock to Buy?
Wall Street remains split about Starbucks’ long-term stock trajectory. On TipRanks, SBUX stock has a Moderate Buy consensus rating based on 13 Buys and 11 Hold ratings. Also, the average Starbucks price target of $95.52 implies that shares are almost fully valued at current levels. Year-to-date, SBUX stock has gained 5.4%.
