Starbucks reportedly considers $40 billion Chipotle merger
SBUX•Starbucks has considered bidding for Chipotle, which is valued at $40 billion. A hypothetical 30% premium would put the price at $50 billion, and the article estimates the deal would require $1.5 billion in cost savings to cover its premium.
1. A costly combination
Starbucks has considered a bid for Chipotle, where Starbucks CEO Brian Niccol previously led a turnaround. A hypothetical offer at a 30% premium would value Chipotle at $50 billion, just under half of Starbucks’ market value.
2. Savings and returns
The article estimates that $1.5 billion in cost savings would be needed to cover the $12 billion premium. Starbucks has $3.5 billion in cash, and financing through borrowing or issuing shares would carry costs; even savings equal to about 12% of Chipotle’s estimated 2026 revenue of $13 billion would imply a 5% return on investment, below Chipotle’s estimated 9% cost of capital.
3. Starbucks operating backdrop
At Starbucks, sales at stores open in both periods rose 8% in the quarter ended in June, while operating margin fell to 13% from 16% two years earlier. The article notes that Starbucks CEO Brian Niccol’s experience at both companies could bring advantages, but says the scale of the potential deal presents a challenge.
