In an announcement from Starbucks, it said it would be paying Mondelez International Inc the amount of USD2.76 billion to settle a dispute as to the coffee shop's own coffee business. The payment ordered by the arbitrator was itemized as damage payments due Mondelez in the amount of USD2.23 billion and USD527 million in interest and attorneys fees, according to the Seattle based firm.
The ruling would be to settle a dispute between the two firms that originated in 2010. Starbucks then had offered Mondelez USD750 million to terminate an agreement where Kraft Foods Inc, now known as Mondelez, had distributed coffee products to food retailers. Kraft had rejected Starbucks' offer at the time.
Kraft had exclusively marketed Starbucks coffee in stores back in 1998. In November 2010, Starbucks terminated the agreement with Kraft claiming failure of Kraft for breach of contract. Kraft then filed for arbitration.
In reaction to the arbitrator's decision, Starbucks said it disagreed with the conclusions reached by the arbitrator reiterating Kraft's failure to deliver its obligations to the brand. In a statement, the Seattle based coffee maker said, "We believe Kraft did not deliver on the responsibilities to our brand under the agreement, the performance of the business suffered as a result and that we had a right to terminate the agreement without payment to Kraft,"
In another reaction, Wedbush Securities analyst Nick Setyan said, "They are paying more than I expected. Having said that, it's great to have it behind us now,"
Mondelez for its part said it would use the proceeds of the award to buy back its own stock from the market. Kraft Foods Group Inc was spun off from Mondelez back in October 2012. It is the named party in the arbitration record, but Kraft had agreed that any recoveries made in the case would be given to Mondelez. Kraft further confirmed that the outcome of arbitration would not have a material financial impact on its operations.
Starbucks shares fell 1.2% to USD79 per share in late evening trading in New York. On the other hand, Mondelez increased share values by 3.5% to USD33.58.
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