Starbucks Explores Chipotle Takeover Proposal in Restaurant Deal

Starbucks has explored a takeover of Chipotle Mexican Grill as the coffee company considers a major expansion in the restaurant sector, according to the Financial Times. Sources familiar with the matter said Starbucks has worked with advisers on a possible proposal, though no formal offer status was confirmed.

The potential transaction would be the largest restaurant-sector takeover ever if completed, according to the Financial Times report. Starbucks has a market capitalization of about $107 billion, while Chipotle has a market capitalization of $42.0 billion.

News of the possible deal affected both companies' shares. Starbucks stock fell as much as 6.7 percent before recovering to a 0.4 percent decline, while Chipotle shares increased 6.2 percent, according to market data cited by the Financial Times.

The exploration of a possible acquisition comes as US merger oversight has taken a less restrictive approach under the Trump administration, according to the source article. The report cited other major corporate combinations as examples of consolidation receiving regulatory attention.

Starbucks has been the main company considering the proposal, with advisers involved in discussions for months, according to sources cited by the Financial Times. The status of the takeover effort remains unclear.

Analyst Sharon Zackfia of William Blair questioned the strategic logic of combining the coffee chain with the Mexican restaurant company.

"No obvious revenue synergies" would result from the deal beyond unusual combinations such as pairing coffee products with burrito offerings, said Sharon Zackfia, an analyst at William Blair.

Zackfia also said investors could challenge the reasoning behind the acquisition and its implications for Starbucks' growth strategy in a note cited by the Financial Times.

"Investors would likely heavily question the rationale and whether such a move signals that management has less confidence in Starbucks’ future growth prospects," said Sharon Zackfia, an analyst at William Blair.