Monday, November 29, 2010
Starbucks-Kraft battle gets bitter
Companies form mergers and partnerships to achieve economies of scale and these relationships usually result in a win-win situation for both parties. This article focus on the collapse of the relationship between Starbucks and Kraft. Starbucks is trying to end their packaging contract with Kraft and craft says it goes against their contract which has been in place for the past 12 years. In addition to that Kraft is demanding a lot from Starbucks as the article states, "Kraft also said that the contract calls for Starbucks to compensate Kraft for the fair market value of the business, plus a premium of up to 35% of that value. The packaged foods company claimed its resources and expertise helped build Starbucks' retail grocery coffee business from generating less than $50 million in annual revenue to about $500 million in sales each year." Although Kraft holds their ground, Starbucks has said that Kraft is also violating the contract so they do not want them to package their goods anymore. This dispute has lead to both companies falling in stock value, thus, hurting each other over their previously profitable partnership.
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2 comments:
I wasn't surprised upon reading this failed mergers between Kraft and Starbucks. Yes, companies do M&A to achieve economies of scale. But, most of the time these mergers DON'T result in a win-win situation for both parties. That is because it is very hard for the synergies that the two parties expect to materialize. Plus, the different structures and culture of each companies make it harder for them to integrate. Those are just two among many reasons why most of the mergers actually destroy value.
khoa, what are you talking about? This article has nothing to do with M&A. It simply reports a contract, which has been in effects in 1998, that is about to end between Kraft Foods and Starbucks.
I'm not sure if this is relevant to economics but from my point of view it seems that Kraft failed to meet its commitment to the contract and did not give out any reasonable explanation
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