BRIEF: Starbucks sells 60% of China business to Boyu Capital at $4 billion valuation

U.S. coffee chain giant Starbucks Corp. (SBUX.US) announced on Monday that it has reached an agreement with Chinese private equity major Boyu Capital to form a joint venture that will operate its retail business in China. Under the deal, Boyu will acquire up to 60% of Starbucks’ China retail operation at a price based on a $4 billion enterprise value for that operation. Starbucks will retain a 40% stake and continue to own the Starbucks brand and intellectual property.

Starbucks estimates its total value of the China retail operations exceeds $13 billion, including its proceeds from the sale, its retained stake, and the net present value of brand licensing fees over the next decade. The new joint venture, headquartered in Shanghai, will operate Starbucks’ 8,000 existing stores in China, with plans to expand to 20,000 locations over the long term.

Starbucks CEO Brian Niccol said Boyu’s local expertise will accelerate the company’s China expansion, particularly in smaller cities. Alex Wong, partner at Boyu Capital, said the partnership will combine Starbucks’ global brand power with Boyu’s market insights to drive innovation and localization.

Starbucks opened its first store in China in 1999, and China had become the company’s second-largest market after the U.S. by 2015. The company has struggled in China lately due to competition from a group of local players led by Luckin (LKNCY.US), which often sell their coffee at far lower prices.

Founded in 2010, Boyu Capital is one of China’s largest private equity firms, with investments across finance, healthcare, consumer goods, retail, media, and high-tech sectors.

By Lee Shih Ta

To subscribe to Bamboo Works weekly free newsletter, click here