Starbucks buying Teavana, eyes repeat of coffee success

Wed Nov 14, 2012 6:01pm EST

Raindrops are seen on the Starbucks logo on a signage at a branch of the coffee shop chain in London October 8, 2012. REUTERS/Luke Macgregor

Raindrops are seen on the Starbucks logo on a signage at a branch of the coffee shop chain in London October 8, 2012.

Credit: Reuters/Luke Macgregor

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(Reuters) - Starbucks Corp (SBUX.O) on Wednesday announced plans to buy Teavana Holdings Inc TEA.N for $620 million in cash, with the goal of replicating the success it has had with its namesake coffee shops.

Teavana has about 300 shopping mall stores that sell loose-leaf, exotic teas. In addition to opening stand-alone Teavana stores in the United States and abroad, Starbucks will add tea bars that serve prepared drinks in existing Teavana stores, Starbucks Chief Executive Howard Schultz told Reuters.

Starbucks opened its first coffee bar inside a store in 1987, when it had 11 stores selling only whole bean coffee.

"We will do something very similar over time with Teavana," said Schultz, who now oversees about 18,000 Starbucks stores around the world. "We will do for tea what we did for coffee."

The world's largest coffee shop operator said it will pay $15.50 per share in cash for Teavana, a 54 percent premium to the company's closing price on the New York Stock Exchange on Tuesday.

Shares of Atlanta-based Teavana jumped 52.5 percent to close at $15.45 on the New York Stock Exchange.

This is not the first tea venture for Starbucks, which also has made a handful of complementary acquisitions this year.

Starbucks bought Tazo tea for $8.1 million in 1999. That business now brings in more than $1 billion in annual sales of products such as tea bags and bottled tea drinks through its own shops and the grocery aisles of many retailers.

On Friday, Starbucks will open its first Tazo tea store in Seattle. That store will act as a "laboratory" for Teavana, Schultz said.

"The two brands will co-exist," Schultz said of Tazo and Teavana. He said Starbucks will develop a line of Teavana branded packaged goods, but declined to say how he would position each brand.

Schultz said the acquisition takes advantage of Starbucks' existing strengths and assets.

"There's no incremental expense other than building new stores and new tea bars," he said.

The Teavana deal comes on the heels of the company's acquisitions of juice company Evolution Fresh and sandwich maker La Boulange Bakery. Starbucks bought Evolution Fresh for $30 million in November 2011, and announced a deal for the bakery in June.

"It's a natural fit with Starbucks' evolving brand portfolio," Morningstar analyst RJ Hottovy said.

News of the Teavana deal was first reported by the Atlanta Business Chronicle. Teavana investors holding about 70 percent of its outstanding shares of common stock have approved the merger agreement, Starbucks and Teavana said in a statement.

Starbucks said it expects the deal to close by the end of the year and to add 1 cent per share in earnings in fiscal 2013.

Starbucks shares fell 2.9 percent to $48.84 on Nasdaq.

(Additional Reporting Brad Dorfman in Chicago; editing by John Wallace and Leslie Adler)

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