People around Starbucks coffee shop in Shenzhen, China.
Jakub Bolzycki | Noor Photos | Getty Images
In May, it paid $2.5 billion for Texas Instruments and positions worth more than $1 billion Johnson Controls. In June, the company took a $2 billion stake Southwest Airlines and a similarly huge investment in Japanese conglomerate SoftBank.
For a $69.7 billion hedge fund, the scale and frequency of Elliott Management’s operations this summer gave even the most seasoned activist defense advisers pause, even by the standards it sets. Undecided.
But the biggest win this year is Starbucksbegan with private discussions about Elliott’s multibillion-dollar stake and ended CEO change Investors and activists cheered.
It wasn’t just a deeply unpopular CEO being replaced by a food industry legend. It wasn’t just an unprecedented share price surge that propelled Starbucks shares to their best performance in more than 20 years. Elliott’s months-long push at the company has produced results that delight shareholders, chairman emeritus Howard Schultz and the board itself.
A consultant who has worked with activists and companies said it put the company on a “transformational” path through a deal that, with the exception of former chief executive Laxman Narasimhan, In addition, almost everyone involved in Starbucks is satisfied with this.
Private negotiations turn public
By June, Elliott had amassed a job at Starbucks worth about $1.9 billion and had begun conversations with the company, according to people familiar with the matter. The activist investor’s green-and-white letterhead has attracted the attention of directors and the media, who anticipate that the company’s plans may include firing an underperforming chief executive. Narasimhan, who was the coffee chain’s chief executive until Tuesday, appears to fit the bill.
Starbucks shares have fallen about 24% since Narasimhan took the helm in March 2023. During the third quarterand in China, the company’s second largest market outside North America, same-store sales plummeted 14%.
Elliott met with Narasimhan and then-chairman Mellody Hobson in late June, people familiar with the matter said. The company remains reeling from a disastrous earnings report and slowing global demand. Representatives of the activist stressed the need for immediate action at both meetings, people familiar with the matter said.
But Elliott isn’t asking Starbucks to fire Narasimhan, CNBC has reported reported before.
Operational reforms and boardroom breakdown
Instead, it submitted a detailed report to Starbucks’ board of directors in early July that focused on strategic reforms, with a particular focus on Starbucks’ lagging China operations and board changes, people familiar with the matter said.
Unlike some other campaigns, such as Southwest Airlines and Texas Instruments, it has kept those conversations confidential.
Elliott viewed the talks as constructive, people familiar with the matter said, but made it clear that significant changes were necessary before Starbucks’ underperformance became so severe that it required public action — possibly through Elliott. A special bragging letter.
Still, word remains about the activist’s position at the company The Wall Street Journal broke the news On July 19, it triggered a burst of attention and scrutiny. Reports in the following days focused on Schultz’s lingering fallout, including a report in the Financial Times that the company’s founder opposed Elliott’s proposed deal.
Negotiations continued, with representatives of the activist meeting in more informal settings between July and August with about three-quarters of the company’s board, people familiar with the matter said. But those conversations came amid a steady stream of leaks that people familiar with the matter said could only have come from the board.
unexpected departure
Elliott has not made it clear he wants a new CEO, but those involved in the discussions are convinced the board would not have sought Chipotle’s Brian Niccol as the new CEO without pressure from Elliott. Successor to CEO.
Hobson, who resigned as chairman to become lead independent director at the same time as Nicholl’s appointment, told CNBC’s “Squawk Box” that the company had not had any discussions with Elliott about Nicholl’s appointment.
“We look forward to communicating with all shareholders on this new development,” Ariel Investments co-CEO told CNBC on Tuesday.
But those close to Elliott admit that while Narasimhan’s departure came as a surprise to the activist, Starbucks landing Nicol was better than anything they could have asked for.
The former Chipotle CEO brought massive transformation and modernization to the company, driving its stock price up more than 770% since 2018.
He also improved how the company handles mobile orders, a key pain point for Starbucks, which has struggled to cope with the high volume of mobile orders in its stores.
Narasimhan learned on Sunday that he would be ousted, The Wall Street Journal reported. Starbucks shares soared 25% after the news broke on Tuesday, marking the company’s best one-day gain since its IPO in 1992. While Elliott never called for Narasimhan’s ouster, there may have been no complaints in West Palm Beach or downtown Manhattan, where the firm has two offices.
Elliott managing partner Jesse Cohn and partner Marc Steinberg said Nicol’s appointment was a “transformative step forward” for Starbucks. “We look forward to continuing to work with the board of directors as we strive to realize Starbucks’ full potential.”
A Starbucks representative did not immediately respond to CNBC’s request for comment. Representatives for Narasimhan were not immediately available for comment.
