Starbucks Kills Chipotle Takeover Rumor: “We’re Not Buying” The Burrito Chain

Hopes of buying a Starbucks Iced Brown Sugar Oatmilk Shaken Espresso and a Chipotle Chicken Burrito Bowl under one roof through a possible merger of the two quick-service restaurant chains were squashed Monday morning.

“As a matter of policy, we don’t comment on rumors and speculation, but we want to be clear we are not buying Chipotle,” a Starbucks spokesperson told Barron’s. The company said it remains focused on executing its “Back to Starbucks” turnaround strategy.

The rumor mill around the two QSRs’ potential marriage began last Thursday, after a Financial Times report said Starbucks had explored acquiring Chipotle.

Analysts have expressed skepticism about the potential deal, which would be one of the biggest takeovers in the restaurant industry.

William Blair restaurant analyst Sharon Zackfia provided her first take on last week’s news:

The Financial Times is reporting that Starbucks is exploring a potential takeover of Chipotle (CMG $32.88; Outperform), the restaurant concept that Starbucks CEO Brian Niccol helmed for 6 years prior to moving to Starbucks just over 2 years ago. Clearly, Niccol knows the Chipotle business extraordinarily well, which at a bare minimum is likely reassuring to Chipotle investors since the stock has declined more than 35% since the news of Niccol’s departure. But what would a combined company look like, and what possible synergies and efficiencies exist?

There are no obvious revenue synergies between the two brands, although perhaps opportunities exist in shared loyalty ecosystems, cross-brand product placements (i.e., Starbucks Refreshers with your Barbacoa Burrito Bowl), or expanding Chipotle’s licensed international business more quickly through Starbucks’ existing relationships. Traditional supply chain efficiencies are likely limited given very different supply chains, with Starbucks sourcing green coffee and pre-made food products, while Chipotle works directly with farms for raw ingredients. G&A savings would likely center in corporate G&A and technology, which we very roundly estimate could be in the $300 million range.

With an enterprise value of more than $40 billion, Chipotle would represent the largest-ever restaurant acquisition. We suspect a fair proxy of a likely acquisition price would be closer to $50 billion, similar to the 20% premiums that Inspire Brands paid to purchase Dunkin’ and that JAB paid to purchase Panera Bread. As of the end of June, Starbucks had about $9.4 billion in net debt and a debt ratio of just over 2 times. An incremental debt slug of nearly $49 billion to buy Chipotle is tough math, and would be dilutive to a combined company 2027 EPS at any interest rate over 4% (assuming no cost savings/revenue synergies). It would also balloon the combined company’s leverage ratio to about 6 times, which would be high in the publicly traded restaurant landscape. An all-shares takeover would be slightly accretive to EPS, with our back-of-the-envelope math suggesting accretion of about 3%. One wild card could be a potential sale of Starbucks Japan, which could help fund a Chipotle acquisition.

Following this morning’s Barron’s report, Chipotle shares fell 3% in early US trading, while Starbucks gained about 1%.

Starbucks’ denial removes any such dream of a near-term tie-up that would’ve resulted in buying an espresso and burrito under one roof.