Starbucks China Receives Offers For Stake Sale Valued Up To $10 Billion – CoffeeTalk

Starbucks China has received offers for a potential stake sale, valued at up to $10 billion. Almost 30 domestic and foreign private equity firms in China have submitted non-binding offers, with proposals on the table valuing the business between $5 billion and $10 billion. Starbucks’ market cap hovers around $108 billion, with its China business generating over 8% of global revenue. A fair valuation would stand at around $9 billion. Starbucks is in the process of evaluating the offers, deal structure proposals, and post-sale value creation pitches from bidders before shortlisting potential buyers. The entire deal is unlikely to be completed by the end of this year.

A spokesperson for Starbucks said that the company plans to keep a “meaningful stake in the business.” There is a possibility of Starbucks retaining a 30% stake, with the rest split among a group of buyers each holding less than 30%. Centurium Capital, Hillhouse Capital, and U.S. private equity firms Carlyle Group and KKR & Co are among the contenders vying for a stake in Starbucks’ China business. Asset managers are under mounting pressure to put dry powder to work due to limited dealmaking activity amid economic headwinds in China.

Securing a deal and deploying idle capital is the top priority right now, as everyone is trying to prove to their firms that they still have the ability to land transactions, even in this market environment. Starbucks is an attractive option, and investors might be compelled to boost offer prices to win the deal, sending valuation even higher. Goldman Sachs is the financial adviser on this deal, leading the process.

Starbucks’ potential stake sale in China is similar to McDonald’s offloading its Chinese business in 2017, which was valuing the business at $2.1 billion. The company later increased its stake to 48%, buying back Carlyle’s 28% share in 2023, valuing the stake at $6 billion. Starbucks is likely to retain a stake in the China business to ensure future gains from the company’s growth and exert influence over incoming partners. It is not yet clear the amount of shares that Starbucks has put up for sale, but a spokesperson told CNBC last month that the company was not considering a “full sale” of its China operation. Starbucks CEO Brian Niccol told Financial Times last month that the company had received “a lot of interest” from investors.

Starbucks in China faces a triple-whammy of consumer pull-back, cut-throat competition, and cost-cut challenges. The coffee chain has lost market share to lower-priced local rivals such as Luckin Coffee, bubble and milk tea brands, and a weaker economic backdrop weighing on consumer demand. Starbucks’ same-store sales in China were flat in the first quarter this year after falling for four consecutive quarters. Its market share in the country fell to 14% in 2024, from 34% in 2019, according to data from market research provider Euromonitor International. To lure back mainland customers, Starbucks launched sugar-free options and opted for its first-ever price cut in China, lowering the prices of more than 20 iced and tea-based drinks by an average of 5 yuan.

Another major risk for those looking to invest in Starbucks’ China business is the potential hefty rental costs for its spacious stores. Starbucks made its foray into China in 1999, as shopping malls in tier 1 cities started offering rental concessions to capitalize on higher foot traffic driven by the company’s stores. However, this may change soon as more mall operators look to scale back such concessions. Starbucks is among several Western brands that have been reassessing their approaches to China, and bringing in trusted strategic partners with local expertise could be one of its best bets to revive the faltering business by speeding up the decision-making process.

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