Starbucks China attracts bids valuing the coffee chain at up to $10 billion, sources say

Starbucks China has attracted offers for a potential stake sale, valuing the coffee chain at up to $10 billion, three people familiar with the deal process told CNBC.

Almost 30 domestic and foreign private equity firms in China have submitted non-binding offers, the sources said, adding that proposals on the table value the business between $5 billion and $10 billion, with bidding expected to settle toward the higher end of that range.

As Starbucks’ market cap hovers around $108 billion with its China business generating over 8% of global revenue, a fair valuation would stand at around $9 billion, according to one person familiar with the matter.

Starbucks is in the process of evaluating the offers, deal structure proposals and post-sale value creation pitches from bidders, according to people familiar with the matter, before shortlisting potential buyers.

That shortlisting may be concluded in two months, but the entire deal is unlikely to be completed by the end of this year, the person said.

In a statement to CNBC, a spokesperson for Starbucks said that the company plans to keep a “meaningful stake in the business.”

“Any deal must make sense for Starbucks business and partners,” the statement said.

There is a possibility of Starbucks retaining a 30% stake, with the rest split among a group of buyers each holding less than 30%, according to one person familiar with the deal process.

Centurium Capital — majority shareholder of Luckin Coffee — Hillhouse Capital and U.S. private equity firms Carlyle Group and KKR & Co are among the contenders vying for a stake in Starbucks’ China business, according to people familiar with the matter.

Asset managers are under mounting pressure to put dry powder to work, with limited dealmaking activity amid economic headwinds in China.

“Securing a deal and deploying the idle capital is the top priority right now,” said a PE veteran familiar with the matter.

“Everyone is trying to prove to their firms that they still have the ability to land transactions, even in this market environment. Just getting a seat at the table shows you can still make money for the firm,” the person said.

That backdrop has made the Starbucks an attractive option and investors might be compelled to boost offer prices in order to win the deal, sending valuation even higher, the person said.

Goldman Sachs is the financial adviser on this deal, leading the process, sources confirmed to CNBC.

Despite all the interest, the coffee chain could still put off the bidding process, if the offers fail to match the valuation the company expects. “It’s a very dynamic process — not until the last day, you won’t be able to know for sure,” one person familiar with the matter said.

Starbucks shares were trading 1.6% higher in Frankfurt.

Not quitting China

Starbucks’ potential stake sale is akin to McDonald’s offloading its Chinese business in 2017, industry experts said.

McDonald’s sold a controlling stake of 52% in its mainland and Hong Kong operations to Chinese state-owned enterprise Citic Capital and a 28% stake to Carlyle in a deal valuing the business at $2.1 billion, while its Illinois-based owner retained the remaining 20%. The fast-food chain later increased its stake to 48%, buying back Carlyle’s 28% share in 2023, valuing the stake at $6 billion.

Starbucks too will be inclined to retain a stake in the China business to ensure future gains from the company’s growth, allowing it to exert influence over the incoming partners, a Shanghai-based PE veteran said. It is not yet clear the amount of shares that Starbucks has put up for sale.

A Starbucks spokesperson told CNBC last month that the company was not considering a “full sale” of its China operation.

The company kicked off the formal sale process of its China operation late last year, a person familiar with the matter said, inviting preliminary proposals from potential suitors.

Starbucks CEO Brian Niccol told Financial Times last month that the company had received “a lot of interest” from investors.

“People see the value of the Starbucks brand. They see the coffee category is growing. I think they’d love to be partnering up with us in figuring out how we take this from 8,000 to 20,000,” Niccol said.

Seattle-headquartered Starbucks had 7,758 stores across China as of March.