Shares in coffee chain Starbucks (SBUX) are rising in pre-market trading as its attempts to sell a stake in its China business begin to froth up.
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Shortlist Bids
According to a Reuters report, Starbucks has asked a shortlist of potential bidders to submit non-binding bids within the next fortnight.
These are said to include private equity firms Carlyle (CG), EQT (EQT), Hillhouse Investment and Primavera Capital, as well as Bain Capital (BCSF), KKR & Co (KKR) and Chinese technology group Tencent (TCEHY).
It is reported that Starbucks has asked these firms to attend management presentations where it will disclose financial and operational details of its China business.
The stake in the business is expected to be valued at around $10 billion. Starbucks is not considering a full sale of the firm, but it has yet to finalise the structure of the sale or size of the stake.
CEO Brian Niccol on Starbucks’ quarterly earnings call last month said the cafe chain had received interest from more than 20 parties and was evaluating options.
“We remain committed to our China business and want to retain a meaningful stake… We will only enter a transaction if it makes sense for Starbucks,” said Niccol.
China Crisis
In China, Starbucks faces sluggish economic growth and competition from local brands such as Luckin Coffee (LKNCY), which has gained market share with cheaper products and more stores in smaller cities. That’s because customers have become increasingly cost-conscious.
As can be seen below, China is Starbucks’ biggest market outside of the U.S.
Starbucks’ market share in China dropped to 14% last year from 34% in 2019. It has fought back by reducing the price of some non-coffee drinks.
It started the stake sale process in May this year, but is understood to have held informal talks with a range of potential buyers since the second half of last year.
It hopes the stake sale, which should be completed by the end of this year, will add like-minded partners who share its vision of offering a premium coffeehouse experience to customers.
Is SBUX a Good Stock to Buy Now?
On TipRanks, SBUX has a Moderate Buy consensus based on 13 Buy, 8 Hold and 1 Sell ratings. Its highest price target is $115. SBUX stock’s consensus price target is $100.68, implying a 13.69% upside.
