A Deal That Lasts Forever?

Starbucks May Spill Kraft’s Coffee is the article title in the WSJ Financial Analysis Commentary section today.  This topic has appeared several times in the last few weeks as Starbucks seeks to dissolve ties with Kraft, who has been operating the mostly grocery retail side of Starbucks since 1998.  The interesting part about this article that caught my eye is that the relationship was to last “forever.”  I wonder how often this happens in business, it seems like a rather permanent statement in a dynamic environment!  It has been a profitable relationship for both parties it appears and Starbucks does have options as demonstrated in the article – it is currently attempting to prove breach of contract by Kraft.  The article states that if this is not effective, Starbucks may be able to buy the retail operations from Kraft, however this would be rather expensive, estimated to require a EBITDA multiple of at least 12 along with a 20% premium.  This is steep, in conjunction with Starbucks needing to invest millions in a distribution business of its own. 

Starbucks May Spill Kraft’s Coffee, WSJ November 29, 2010.