Wednesday, November 13, 2013

Arbitrator Awards Kraft $2.8B in Dispute with Starbucks

An arbitrator has awarded Kraft Foods $2.23 billion in damages and $527 million in prejudgment interest and attorneys fees for prematurely leaving a partnership between Starbucks and Kraft.
The two companies began an agreement in 1998 for Kraft to distribute and market Starbucks brand coffee to grocery stores in the United States.  Later, the deal called for the marketing and distribution to be international.  The relationship began to sour in 2010 as Starbucks became convinced that Kraft was not sufficiently proactive in marketing the Starbucks brand coffee.  As a result, Starbucks sought to end the partnership by offering Kraft a payment of $750 million.  Kraft rejected the offer.  Nevertheless, Starbucks withdrew from the partnership in 2011.  Kraft then initiated the arbitration proceedings, which resulted in the arbitrator's large award.
The decision awarding payment approached the amount that Kraft originally sought in the arbitration.  The company demanded damages of $2.9 billion, thus it realized more than 75% of the requested amount before considering interest and attorneys fees.  By any measure the decision was a significant victory for Kraft.
In 2012, Kraft split into two companies.  They are Kraft Food Group, Inc., and Mondelez International, Inc.  At the time of the restructuring, the terms made clear that Mondelez would receive any recovery from Kraft.
Starbucks has sufficient cash and borrowing capability to satisfy its obligation to Mondelez.  Nevertheless, the coffee giant is reviewing the decision to determine whether to appeal it.
For further information please see The Wall Street Journal, "Starbucks Defeated, Fined $2.8 Billion," November 13, 2013, page B1.   

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