Starbucks Pays a Steep Price to Buy Teavana


Starbucks (SBUX) has read the tea leaves, and what it saw was more exposure to the booming tea market.

The baron of baristas announced on Wednesday afternoon that it will pay $620 million to acquire Teavana (TEA). Yes, Starbucks is already championing its own Tazo tea line, but this is more of a wager on the culture of tea sipping than a brand-specific play.

Teavana runs a chain of upscale mall stores that sell dozens of varieties of loose teas and artisanal tea-making equipment. They do also sell brewed tea beverages, but that's a tiny sliver of its overall business. This is a retail play, and Teavana is growing quickly. Earlier this month it opened its 300th store.

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The move makes sense for Starbucks, which also turned heads last November when it acquired juice bar Evolution Fresh in a smaller $30 million deal. For Starbucks it's merely about expanding its exposure to premium beverages.

Coffee may be as popular as ever right now, but it's always good to know that it has smoothies and freshly squeezed juices through Evolution and a tea-retailing presence through Teavana.
The news was announced with an hour left in the trading day on Wednesday, so Teavana's stock has already popped higher on the news. Now it will be interesting to see how the market assesses the situation as investors place bets on which premium beverage company will get acquired next.

Other Things Worth Watching

• Texas Instruments (TXN) revealed that it will cut 1,700 jobs worldwide as it prepares to cut costs in its wireless business. The move -- which will eliminate roughly 5% of the chip maker's entire workforce -- is expected to save the company $450 million a year. It's never good news to see a wave of pink slips being issued, but isn't it refreshing to see a layoff announcement this month that isn't blaming the move on the presidential election results?

• Folks still love their pets. PetSmart (PETM) posted better than expected results after Wednesday's market close. Sales climbed 9% higher, fueled by an impressive 6.5% increase in same-store sales. Earnings soared 50% to $0.75 a share, blowing through the $0.63 a share that analysts were targeting. The market obviously liked the report. You don't -- pardon the pun -- dog a company after financial results like this.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Starbucks and Teavana Holdings. The Motley Fool has written puts on Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and PetSmart and writing covered calls on Starbucks.