Dj Cfo Ruggeri Sells 1491 Of Starbucks Corp >Sbux

New On The Block

• Starbucks is looking to sell a stake in its Chinese operations. Same-store sales in China fell 14% last quarter, with the Seattle-based coffee retailer seeking partnerships to adapt to tough economic and competitive pressures.

Bankruptcy Block

• Snack producer Hearthside Food Solutions went bankrupt. The private equity-owned company looks to offload the $1.9 billion in debt accumulated under the ownership of Partners Group Holding AG and Charlesbank Capital Partners. The two firms bought Hearthside for more than $2.4 billion. Assets and liabilities hover between $1 billion and $10 billion. Last year, bankrupt private equity portfolio companies in the U.S. outpaced the number of bankruptcies in 2020. It remains to be seen whether 2024 will be worse.
• Northvolt filed for bankruptcy with debt of $5.8 billion. Recall how the Swedish battery maker, which supplies Volkswagen AG and Bayerische Motoren Werke AG (OTC:BMWYY), bargained with banks to raise debt last year. Now, it’s hoping to restructure under U.S. Chapter 11.

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Updates From The Block

• Google‘s $2-billion investment in Anthropic is in jeopardy, according to Bloomberg. Anthropic is a Jeff Bezos-backed rival to artificial intelligence (AI) innovator OpenAI. The U.S. Department of Justice (DOJ) recommended in a court filing Wednesday that Alphabet Inc‘s Google divest its Chrome browser to dismantle its monopoly on online search. It doesn’t end there. Google should be barred from doing any deals with companies that control where consumers search for information, regulators say. That includes AI products.
• Ricky Williams‘ Highsman merges with hemp brand Frozen Fields, forming Top Seed Inc. The partnership blends cannabis and hemp sectors, leveraging R&D to enhance products and control supply chains.
• MakeMyTrip acquires Happay from CRED. The deal is expected to enhance corporate travel and expense management solutions in India. Happay’s team will integrate with MakeMyTrip, supporting over 900 clients post-acquisition.
• Amcor plc and Berry Global Group, Inc. agreed to merge in an all-stock transaction, with the deal valuing Berry stock at $73.59 per share.
• Nippon Steel executives have traveled to Pennsylvania to garner support for their $15 billion acquisition bid for U.S. Steel . The Japanese steel giant is encountering political resistance in Washington. Takahiro Mori, vice-chair of Nippon Steel, arrived in Pittsburgh on Saturday to advocate for the acquisition. The deal faces opposition from both President Joe Biden and President-elect Donald Trump, who prefer U.S. Steel to remain under American ownership.

Notes From The Block

Joshua Robinson, co-founder of Darwin Financial Company, announced a $55-million financing deal with INYOAG LLC. The funds will help develop a solar-powered mine in Inyo County, California where there are proven reserves of silver, lead, zinc, tungsten, and copper. Here’s our conversation with Robinson:

BZ: What is the deal structure between Darwin Financial and base metals miner INYOAG?

Robinson: The deal structure is a $55M project financing package split into three components: $17.5 million and $12.5 million in six-year notes tied to sulfide and oxide production respectively, plus a $20-million conditional equity commitment that only triggers if the mine hits $10 million in monthly revenue. We get 17% of gross revenues from both production tracks, structured through secure lockbox arrangements. It’s not a straight equity investment, we specifically designed it this way to provide further upside exposure.

Are you looking for additional investors/joint venture partners?

Yes, we’ve deliberately structured this to create multiple layers of upside potential, which is pretty unique in the mining space. We’ve created a hybrid model that offers both near-term cash flow from production and significant expansion potential. We’re already seeing interest from established mining players, but we’re particularly excited about bringing new investors into the space who understand the strategic value of critical minerals.

What are the downsides to depending on foreign sources of critical minerals?

China’s recent actions really highlight the urgency here. They’ve already implemented export controls on germanium and gallium, and just added antimony to that list. This isn’t theoretical anymore, it’s actively happening. We need to build regional resilience in our supply chains, particularly for these minerals that are crucial for defense and technology. The Darwin Mine gives us a unique opportunity to establish a domestic source for multiple critical minerals in a single asset, which is rare to find.

Will the mine be powered by solar?

The 100MW facility wouldn’t just power the mine. It would generate significant excess clean energy that we can sell back to the grid. What’s particularly interesting is that we can develop utility-scale energy storage systems using minerals we’re already producing. It creates a virtuous cycle where our mining operations directly support clean energy deployment

What are your 2025 goals?

For 2025, our key goals are reaching 300 tons per day on sulfide production within six months and 200 tons per day on oxide within nine months of funding. That puts us at $ 10 million in monthly revenue, which then triggers the deeper mine development program.

For last week’s Deal Dispatch, click here.

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Starbucks’ (SBUX) stock rose by 1.8% on Thursday, following reports that the coffee giant is exploring the sale of a stake in its Chinese operations.

This potential move, aimed at fostering growth in the world’s largest coffee market outside the US, comes as Starbucks grapples with declining sales and fierce competition from local rivals.

Stake sale could boost growth but may impact margins

According to Bloomberg, Starbucks is considering a strategic partnership in China by selling a stake to a local investor.

While the specifics of the deal remain unclear, such partnerships are common among Western companies operating in China.

Analysts warn that the move could dilute profit margins but provide much-needed support in a challenging market.

Peter Saleh, an analyst at BTIG, noted in an October report that while a stake sale may improve Starbucks’ competitive position, it is unlikely to be a high-margin strategy.

However, the potential partnership could help Starbucks better cater to Chinese consumers’ preferences and navigate the intense competition in the region.

China: A critical but struggling market for Starbucks

China accounts for approximately 9% of Starbucks’ total revenue, generating $3 billion in fiscal 2024 from its 7,500 stores.

Despite significant investments to strengthen its presence, the company faces challenges stemming from a weaker consumer environment and stiff competition from local brands like Luckin Coffee, which has rapidly gained market share.

Same-store sales in China dropped 8% year-over-year in fiscal 2024, with a sharper decline of 14% in the fourth quarter ending September.

This slump reflects a decrease in both the number and size of orders, exacerbated by changing consumer behaviour and economic headwinds.

Starbucks’ struggles in China are not unique. Other Western brands, including Yum! Brands and McDonald’s, have faced similar challenges and turned to local partnerships or stake sales to regain momentum.

Yum! China, which emerged after Yum! Brands sold a stake in its Chinese operations in 2016, is now a publicly traded company on the New York Stock Exchange.

Strategic parallels and potential outcomes

If Starbucks proceeds with the stake sale, it could follow the path of other global brands that have successfully leveraged local partnerships in China.

However, these arrangements come with trade-offs, often involving reduced control over operations and profit-sharing agreements.

Starbucks CEO Brian Niccol, who took over in September 2024, has acknowledged the complexity of the Chinese market.

On the company’s latest earnings call, he noted the “extreme” competitive environment and the need for a long-term strategy to grow in the region.

Niccol plans to visit China to gain a deeper understanding of the challenges and opportunities.

Domestic challenges overshadow China’s issues

While the situation in China is significant, Starbucks faces even larger hurdles in its North American market, which accounts for 75% of its total revenue.

In fiscal 2024, same-store sales in North America fell by 6%, driven by complaints about long wait times, rising prices, and a perceived decline in the in-store experience.

Under its “Back to Starbucks” initiative, the company is focusing on revitalizing its US business.

This plan includes streamlining operations, addressing customer feedback, and improving employee engagement.

Niccol has prioritized these efforts, spending much of his time visiting US stores and engaging with partners.

The dual challenges in China and North America highlight the balancing act Starbucks must perform to maintain global growth.

While the proposed stake sale in China could provide a boost, it may not address the broader issues impacting the company’s performance in its home market.

What does this mean for SBUX stock?

The potential stake sale in China has created optimism among investors, as reflected in the recent uptick in Starbucks stock.

However, analysts caution that the long-term impact will depend on how effectively the company executes the partnership and adapts to the evolving Chinese market.

Additionally, Starbucks’ focus on its domestic operations may limit its ability to fully address the challenges in China.

The company’s ability to juggle both priorities will be critical to sustaining investor confidence and delivering consistent financial performance.

For now, the market is watching closely as Starbucks navigates this pivotal moment in its global strategy.