Starbucks Launches Planned $5 Billion Buyback Days After Ackman Unveils Stake

Starbucks (SBUX)  surged Friday after it said it would start buying back $5 billion in shares as part of a broader plan to return around $25 billion to investors just days after a key activist unveiled a stake in the world's biggest coffee chain. 

Starbucks said the buybacks, flagged as part of a plan to return billions to shareholders by 2020 following its $7.15 billion deal with Nestle SA earlier this year that gives it perpetual rights to market Starbucks products outside of the United States, will likely be completed by February or March of next year. Earlier this week, Bill Ackman said Pershing Square Capital Management LP, the hedge fund he manages, had taken a $900 million stake in Starbucks

Starbucks shares were marked 1% in the opening minutes of trading Friday and changing hands at $55.50 each, a move that trims the stock's year-to-date decline to around 3.5%. 

Ackman unveiled his stake in Starbucks to an audience at Grant's Interest Rate Observer Conference in New York Tuesday and now holds 15.2 million shares in the Seattle-based group. That equates to roughly 1.4% position in the world's biggest coffee chain, which he called "one of the greatest businesses in the world."

"We view the active, engaged dialogue that we have with shareholders as critical input into our strategic approach and we value constructive feedback on delivering long-term shareholder value," Starbucks said in a statement. "We look forward to maintaining a productive dialogue with Mr. Ackman as we do with all of our shareholders."

The stock had struggled this year, as its July earnings report showed weakening sales growth. Same-store sales increased 1%, slowing from a 2% growth in the previous quarter, well below expectations for broader U.S. coffee sales to grow at roughly 3% per year from 2018 to 2021.

That quarter, Starbucks' earnings-per-share came in at $0.62, just beating Wall Street's expectations of $0.61, but the full year guidance was slashed. Management guided for earnings of $2.40 to $2.42 for the full year, where as it had previously guided for an upside of $2.43.

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