Starbucks Should Bake Higher Profits With This Acquisitionhttp://www.fool.com/investing/general/2012/06/05/starbucks-should-bake-higher-profits-with-this-ac.aspx Eric Volkman
June 5, 2012
Alors! Starbucks (Nasdaq: SBUX ) is plunging deeper into the food business with its just-announced acquisition of French-flavored gourmet bakery chain La Boulange. This is a good move by the coffee king, and if done right it should add at least a few cents to the company's bottom line. It's about time, too, as the coffee maker has never really gotten its act together as far as comestibles are concerned.
Want a bagel with that latte... please?
The coffee purveyor has made a mighty effort to shore up those offerings in recent years, putting healthier options and smaller-sized pastries on the menu. This has boosted food sales, but there's still a long way to go; according to the company, vittles currently account for $1.5 billion of company revenue in its American stores. That's not a huge amount, considering the firm rang up total domestic sales of $8 billion in its most recent fiscal year.
Which is what the coffee giant needs in terms of food. After all, when was the last time any of us heard a friend or colleague rave about the sandwich wrap or banana bread they ate at Starbucks?
The deal looks very favorable for both parties. Starbucks gets not only La Boulange but Rigo as an executive and presumably something like a Chief Baking Officer (technically he'll be the vice president and general manager of the bakery, which is to become a unit of its acquirer).
On a relative basis Starbucks didn't have to break the bank for the purchase. It came out to $100 million in cash, or approximately $0.13 per share. With $2.2 billion in cash and short term investments Starbucks should easily be able to foot the bill. In