In order to enhance its food business, Starbucks Corporation (SBUX - Free Report) has agreed to purchase San Francisco-based Bay Bread, LLC and its La Boulange bakery brand from a management and an investment group, Next World Group for $100 million in cash.
Starbucks has also planned to hire the renowned French baker Pascal Rigo, who has worked with Next Group over the past six years to grow the La Boulange brand.
The deal is expected to consummate in the second half of 2012 and dilute the company's earnings by 2 cents per share. After the completion of the deal, Bay Bread, LLC and the La Boulange bakery brand will become a wholly-owned subsidiary of Starbucks. Rigo will be named senior vice president and general manager of La Boulange bakery at Starbucks.
La Boulange -- which sells its products like croissant, cookie, pastry, loaf and bread in several exclusive restaurants, hotels and specialty grocery stores in 19 retail locations in the Bay Area -- will now be in Starbucks retail stores in the U.S. The company is also making efforts to distribute La Boulange products in Starbucks stores nationwide.
The acquisition will not only allow the company to popularize the French bakery experience in the U.S. markets, but will position the company to elevate Starbucks core food offering, which has grown double digits in each of the last two fiscal years.
We currently have a Neutral recommendation on Starbucks. The stock holds a Zacks #3 Rank (a short-term Hold rating).