Starbucks To Pay Kraft $2.7 Bln. Over Coffee Distribution Spat

(RTTNews) - An arbitrator on Tuesday ruled that Starbucks Corp. (SBUX) must pay about $2.7 billion to Kraft Foods Group Inc. (KRFT) for its unfair termination of a lucrative coffee distribution contract that the latter built from scratch.

The payment includes $2.23 billion in damages and $527 million in prejudgment interest and attorneys' fees.

The arbitrator's ruling comes three years after Starbucks removed Kraft as the sole distributor of its roast and ground coffee to grocery and retail chains.

Kraft said the net proceeds will go to Mondelez International Inc. (MDLZ), the snack foods maker which was spun off from Kraft in October 2012.

Meanwhile, Starbucks Chief Financial Officer Troy Alstead said his company disagrees with the arbitrator's ruling.

"We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result," Alstead said.

"While we disagree Kraft is entitled to damages, the amount awarded reflects the value of our at-home coffee business and the continued global growth opportunity that lies ahead," Alstead added.

Kraft began marketing Starbucks coffee in 1998 and turned it into a sound business. In November 2010, Starbucks said it will terminate the deal, forcing Kraft to initiate arbitration proceedings.

Meanwhile, Starbucks said it has enough cash on hand and available borrowing capacity to make the payment, which will be accounted for as a charge to fiscal year 2013 operating expenses.

As for Kraft, it plans to use the proceeds to buy back Mondelez shares.

Starbucks stock closed Tuesday at $80.61, down $0.38 or 0.46%, on a volume of 3.3 million shares on the Nasdaq. In after hours, the stock dropped $1.20 or 1.49%, to trade at $79.41.

Kraft Foods closed at $51.96, up $0.42 or 0.80%. In after hours, the stock gained $0.18 or 0.35% at $52.14.

Mondelez closed at $32.43, up $0.06 or 0.20%. In after hours, the stock gained $0.97 or 2.99% at $33.40.