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Positives and Negatives of Starbucks' (SBUX) Teavana (TEA) Deal

November 15, 2012 11:59 AM EST Send to a Friend
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Yesterday's big news in the M&A world was Starbucks' (Nasdaq: SBUX) surprise move to acquire tea house chain Teavana (NYSE: TEA) for $620 million, which has locations in 300 malls across North America.

Analysts at Goldman Sachs weighed in on the deal Thursday, noting the positives and negatives.

On the positive side, Goldman said it would have taken Starbucks years to build its own store base in the sector. Also, Starbucks could tap the potential of the Teavana brand with its advanced customer acquisition and retention techniques, real estate expertise outside of malls, an established presence in international markets, and an ability to leverage the brand in CPG channels. In addition, would likely be margin accretive for Starbucks. Teavana has 60% gross margin and 20% EBITDA margin at this point, with the potential to improve this.

On the negative side, the acquisition adds yet another project for Starbucks to manage. "On the one hand we laud SBUX for maintaining its entrepreneurial risk-taking culture, while on the other we see some level of risk that SBUX is taking its eye off the core business," the firm said.

Goldman maintained their Conviction Buy List rating and $62 price target on Starbucks.




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