Starbucks agreed to pay $2.76 billion to a Kraft Foods spinoff for ending a deal for Kraft to get the U.S. coffee giant's packaged brews to grocery chains.
Starbucks Corp. agreed after being ordered by an arbitrator to make the payment, ending a three-year fight that started when Starbucks fired Kraft Foods Inc. as its packaged ground and whole beans distributor after complaining Kraft didn't do enough to stock and promote the coffees, which Starbucks said was hurting the Seattle coffee company and coffeehouse chain's corporate performance.
Starbucks, which started the six-year deal with Kraft in 2008, sought to end the deal in 2010, offering to pay Kraft $750 million.
Kraft rejected the offer, but Starbucks withdrew anyway in 2011, prompting Kraft to begin breach-of-contract arbitration proceedings to get Starbucks to pay what Kraft claimed the agreement stipulated.
Starbucks said Kraft didn't live up to its end of the deal.
Kraft lawyers argued Starbucks owed $2.9 billion, plus attorney fees, based on nearly $500 million in sales of the Starbucks coffee it distributed in 2010.
Analysts cited by The Wall Street Journal estimated Starbucks would probably be told by the arbitrator to pay more than $1 billion.
Kraft split into two companies in October 2012, with Kraft Foods becoming Mondelez International Inc. Mondelez of Deerfield, Ill., which now focuses on snacks and confections, is to get the payments from Starbucks as part of the spinoff agreement with Kraft.
Mondelez said it planned to use the money to buy back shares of stock.
Starbucks Chief Financial Officer Troy Alstead said his company strongly disagreed with the arbitrator's conclusion.
"We believe Kraft did not deliver on its responsibilities to our brand under the agreement; the performance of the business suffered as a result," he said in a statement.
At the same time, he said Starbucks was "pleased the arbitration has ended."
The New York Times said Starbucks would not appeal the decision and simply pay the money.
Starbucks said it had enough cash and borrowing capacity to make the payment, which will be booked as a charge to its fiscal 2013 operating expenses.
"We're glad to put this issue behind us," Mondelez General Counsel Gerd Pleuhs said in a statement.
"We can now fully focus on growing our global snacks business," he said, adding, "We're pleased that the arbitrator validated our position that Starbucks breached our successful and longstanding contractual relationship without proper compensation."
Kraft now has a new partner in the packaged-coffee business -- McDonald's Corp., the Journal noted. The company said last month it would sell packaged McCafe coffee in U.S. grocery stores in test markets next year.
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Original headline: Starbucks to pay $2.8B to Kraft spinoff, ending 3-year fight
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