Starbuck Corp. said it agreed to pay Mondelez International the amount of $2.79 billion as a settlement of a dispute over the bagged coffee business for the coffee shop behemoth.
An arbitrator ordered the payment that consists of damages in the amount of $2.23 billion and attorney’s fees and interest of $557 million.
Starbucks, based in Seattle, Washington, said it had adequate cash as well as borrowing capabilities to fund such a payment and would book the charges to its operating expenses for fiscal 2013.
On Tuesday, Starbucks said it disagreed with the conclusion of the arbitrator and said that Kraft had not delivered on its responsibility.
Mondelez announced in a prepared statement that the proceeds from the settlement would be used to repurchase stock.
While the party named in the dispute remained Kraft Foods Group after it was spun off by Mondelez October 2012, Kraft had agreed to place any recovery in the hands of Mondelez and said the decision by the arbitrator would not have an impact financially on the company.
In late 2010, Howard Schultz the CEO of Starbucks said he was planning to end the pact for distribution with Kraft. The original agreement had started in 1998 and was then superseded by a new agreement in 2004. The largest coffee chain in the world was attempting to generate more revenue from supermarkets with its new products.
Kraft sought to be compensated for fair market value represented by the business plan and a premium of up to 35%. Since the two had started to work together the retail coffee business for Starbucks grew to an outstanding $500 million annually in revenue from just $50 million.
Starbucks said its sales growth at supermarkets quickly dropped after 2000 and market share fell off to 25% of premium coffee sales in grocery stores at the start of 2010 from nearly 33% five years earlier.