Starbucks Buys Into Food Business, And Kills Its Shares

Some investors believe that Starbucks (NASDAQ: SBUX) is spread too thickly with it efforts in Asia, additions of new energy and fruit drinks, and efforts to further conquer the grocery store business. CEO Howard Schultz disagrees. Starbucks entered into a definitive agreement to acquire San Francisco-based Bay Bread, LLC and its La Boulange bakery brand. The price was $100 million. If that were not enough, the new company needs a celebrity chief apparently. Starbucks will hire French baker Pascal Rigo

It is too early to say what Starbucks will do with the properties, or how quickly they might be integrate into other parts of the coffee company. This made investors worried, and they dropped Starbucks stock by 2% after hours. Shareholders much have read the decades old Harvard Business Review article which says most M&A activity does not work.

Schultz put his own spin on the buyout– “This is an investment in our core business. After more than 40 years, we will be able to say that we are bakers too. In La Boulange bakery and Pascal, we’ve found a company and a culinary artist who share our passion for creating premium products, reinventing and elevating an entire product category, and delivering the best customer experience. We looked at opportunities comprehensively when making this acquisition and we believe La Boulange is truly unique in terms of visionary leadership, product taste and quality, brand authenticity, bakery capabilities, and potential for growth.”

If he and Starbucks were indeed bakers, they would not have needed to buy La Boulange

Douglas A. McIntyre