Analysts are skeptical of a potential mega-deal as Starbucks Corp. (NASDAQ:SBUX) reportedly explores acquiring Chipotle Mexican Grill (NYSE:CMG).
The transaction, if pursued, would rank as the restaurant industry’s largest deal. However, analysts questioned whether Starbucks could manage such an acquisition while continuing its own recovery effort.
Eric Gonzalez, an analyst at Seaport Research, described the potential move as a “risky proposition” for Starbucks amid the ongoing turnaround, pointing to the leadership connection between the companies, reported MarketWatch.
Notably, Chipotle CEO Scott Boatwright previously worked under Starbucks CEO Brian Niccol. Boatwright joined Chipotle during its efforts to restore its reputation and financial performance after a food-safety crisis.
"The question I have is when you have a CEO of Starbucks who is very familiar with Chipotle, what is he seeing at Chipotle where he’s saying to himself, ‘I can do this better’?" Gonzalez said.
Meanwhile, Brian Mulberry of Zacks Investment Management told the publication that the acquisition could require substantial debt financing amid a sharp rise in bond yields. "The problem is that Starbucks itself is still in recovery mode, and I am not certain adding more debt to finance this deal would be well-accepted by investors right now," he said.
Starbucks Explores Potential Chipotle Takeover
On Thursday, a report suggested that Starbucks consulted advisers in recent months about a potential takeover of Chipotle, which hired bankers last week to defend against a possible bid.
The early-stage discussions could reunite Starbucks CEO Brian Niccol with Chipotle, which he led from 2018 to 2024 and helped rebuild after a food-safety crisis. However, no formal offer has been confirmed, and the deal may never materialize.
Turnaround Shows Signs of Progress
In May, Starbucks elaborated its "Back to Starbucks" turnaround plan, which included cutting 300 U.S. corporate jobs and closing regional offices in Atlanta, Chicago and Dallas, with restructuring charges expected to reach $400 million, including $120 million in severance costs.
Starbucks beat third-quarter earnings and revenue estimates, with comparable-store sales rising 7.9% for a fourth consecutive quarter of growth. CEO Brian Niccol said the results validate the company’s "Back to Starbucks" strategy focused on coffee quality, customer connections and experience.
Meanwhile, Chipotle shares have fallen over 20% over the past year, including a 9.30% decline this month, as consumer concerns persist following last summer’s Salmonella-linked jalapeño recall. The company began switching suppliers at affected restaurants on July 20 and has since stopped serving the product. The stock closed 6.21% higher at $32.68 on Thursday amid the acquisition report.
Price Action: On a year-to-date basis, SBUX stock surged 10.69%, as per Benzinga Pro. On Thursday, it fell 0.40% to close at $93.21.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image via Shutterstock
Login to comment