This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Starbucks Goes Down Hard to Mondelez in Grocery War

Stocks in this article: SBUX MDLZ

When Starbucks finally canceled Kraft, in March 2011, Kraft said the new deal was perpetual, automatically renewable, and that it had grown the company's grocery business from $50 million in 1998 to $500 million. It demanded fair market value for that business, plus a premium of 35%.

Starbucks had been moving against the deal for months by then, with Kraft claiming Starbucks had offered $750 million to end the contract, a figure Kraft called inadequate. Starbucks alleged the contract had been breached as early as October 2010, claiming $100 million in lost sales.

The arbitration award is far richer than that original offer. It's $2.23 billion in damages plus $527 million in interest and attorney fees.

Starbucks has enough cash and borrowing capacity to pay, and says it will book the cost to its 2013 fiscal year. As of the end of September, Starbucks had $2.58 billion in cash and equivalents on its books, and another $658 million in short-term investments.

The company recently doubled long-term debt to almost $1.3 billion to reach that cash figure. If it borrowed to pay off Mondelez it could temporarily raise debt to more than 35% of assets. Paying in cash would wipe out its cash position.

Regardless of how Starbucks finances this, it's going to be a major hit to the balance sheet. Fortunately, the company threw off $3 billion in operating cash flow during the last quarter, and more than $3 billion more during the first half of the year. Paying the award isn't the issue. The cost to Starbucks' growth after paying the award is the issue.

For Mondelez, meanwhile, this is a windfall. The company reported revenue of almost $8.6 billion for the quarter ending in June, but only $616 million in profit. Mondelez has a market cap of $57.75 billion, almost as much as Starbucks' $60.72 billion, and says it will use the money to buy back stock.

At the time of publication, Blankenhorn had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs