Starbucks stirs dregs into a venti merger

Chipotle Mexican Grill

09/10/2026 15:32

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add dropped word to indicate Niccol's hiring in the second paragraph.
By Sebastian  Pellejero
NEW YORK, Oct 9 (Reuters Breakingviews) - Starbucks SBUX.O boss Brian Niccol may put the green apron on his former employer. The coffee chain has considered making a bid for $40 billion Chipotle Mexican Grill CMG.N, the Financial Times reported citing people familiar with the matter. The combination makes for a strange brew. 
Niccol joined the Seattle-based company two years ago when it was reeling from labor unrest, a sprawling menu that lengthened wait times and pushy shareholders Elliott and Starboard looming in the background. Under his leadership, Starbucks has succeeded in implementing faster service and more welcoming stores. Among stores open during both periods, sales for the quarter ending in June rose 8% from the year prior. The growth, however, comes at a cost. The company's operating profit margin fell to 13% versus 16% two years earlier. After initial enthusiasm for Niccol's hiring in August 2024, shares have been roughly flat.
Buying Chipotle, where Niccol was lauded for turning around the burrito-to-bowl restaurant, would put another costly undertaking on his plate. Assume Starbucks offered a 30% premium for a price tag of $50 billion, just under half Starbucks' own market value. Immense cost savings of $1.5 billion would be necessary to make it pencil out. Tax those synergies at 24% and capitalize them on a multiple of 10, and they would cover the $12 billion premium. 
Starbucks has $3.5 billion in cash; borrowing money to fund any deal would be expensive and issuing shares would dilute investors. Moreover, even if Niccol could find cuts and other efficiencies to equal around 12% of Chipotle's estimated 2026 revenue of $13 billion, the transaction would be a tall order. The fast-casual restaurant is expected to make $1.9 billion in operating profit this year, according to Visible Alpha data. Add in the cost savings and give Uncle Sam his take, and it suggests a 5% return on investment, well below Chipotle's 9% cost of capital reckoned by Morningstar. 
Smashing together food and beverage brands offers no obvious recipe for value. Burger King's $11 billion tie-up with Tim Hortons in 2014 promised to take the Canadian coffee chain global. But scale brought its own problems. Franchisees sued, accusing the new owner of squeezing their businesses, while Burger King later needed to invest more than $2 billion in a US turnaround. Shares of parent Restaurant Brands International have badly lagged the S&P 500 Index since the deal closed.
Having a leader who knows both operations could bring some advantages, yet such reasoning is a weak excuse for a move this size. If Niccol's best idea is to buy back into his old job, shareholders may start reconsidering his current one.
     
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CONTEXT NEWS
Starbucks has explored a takeover of Chipotle Mexican Grill, the Financial Times reported on October 8, citing people familiar with the matter. Brian Niccol, the coffee chain's chief executive, was the former boss of the fast-casual burrito restaurant. 

(Editing by Jennifer Saba; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))