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Starbucks forced to pay big bucks to Kraft after dispute

Starbucks shares dropped 1.8 percent to $79.15 before the bell after the news on Tuesday.

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Starbucks was forced to pay Kraft $2.8 billion after prematurely cancelling a deal to sell its coffee in grocery stores. (Cris Bouroncle/AFP/Getty Images)

Starbucks owes Kraft a lot of money - about $2.8 billion, in fact.

An outside arbitrator said that Starbucks has to pay $2.23 billion in damages plus $527 million for interest and legal fees after terminating its packaged coffee supply agreement with Kraft.

Starbucks shares dropped 1.8 percent to $79.15 before the bell after the news on Tuesday.

Kraft began selling Starbucks coffee in grocery stores in 1998.

Starbucks prematurely cancelled the deal in 2011 despite agreeing to terms that would see Kraft sell the coffee until 2014, stating that Kraft had violated the deal.

Starbucks gave the business to the privately-held Acosta Inc.

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Kraft fought back and said that it had created a business worth $500 million per year.

They won but Starbucks still believes it was correct.

“We are pleased the arbitration has ended,” said Starbucks Chief Financial Officer Troy Alstead in a statement, according to Forbes.

“We believe Kraft did not deliver on its responsibilities to our brand under the agreement, the performance of the business suffered as a result, and that we had a right to terminate the agreement without payment to Kraft.” 

The money will go to Mondelez, a holding company that runs Kraft's grocery wing.

Starbucks cannot appeal the decision as per the terms of the arbitration agreement.

Revenues at Starbucks Corporation in 2013 totaled $14.9 billion.

http://www.globalpost.com/dispatch/news/business/131113/starbucks-forced-pay-big-bucks-kraft-after-dispute