Starbucks has officially denied reports that it was considering acquiring Chipotle Mexican Grill, the U.S. burrito chain. Some observers had said a deal would amount to the largest merger ever in the restaurant industry, but the speculation has receded for now after Starbucks ruled it out directly.
A Starbucks spokesperson said the company will not acquire Chipotle, CNBC reported on the 12th.
The denial came four days after the Financial Times reported on Oct. 8 that Starbucks might pursue a takeover of Chipotle. Citing multiple people familiar with the matter, the newspaper said Starbucks had been working with advisers for several months to prepare an offer for the chain.
Behind the attention on a possible deal is Starbucks Chief Executive Brian Niccol. Before moving to Starbucks, Niccol served as Chipotle's chief executive and drove the company's growth. According to the Financial Times, early plans for a deal included having Niccol take charge of Chipotle's management again.
Chipotle shares rose immediately after the speculation surfaced. The stock has fallen about 20% over the past year after the chain posted weak results last year on declining store traffic. Expectations spread among investors that a return by Niccol to Chipotle's management could mark a turning point for its performance. Earlier this month, U.S. news outlet Semafor reported that Chipotle had hired advisers to respond to pressure from activist investors or to a hostile takeover bid.
The size of the potential deal also drew interest. The Financial Times said a transaction between the two companies would be the largest merger on record in the restaurant industry. The current record is Burger King's $11.4 billion purchase of Canadian coffee chain Tim Hortons in 2014. Combined revenue at Starbucks and Chipotle was estimated at close to $50 billion.
Starbucks shares, by contrast, fell immediately after the report, moving in the opposite direction from Chipotle. The decline was seen as reflecting concern that a large acquisition could add to financial strain and divert management attention at a time when Starbucks is pursuing its "Back to Starbucks" strategy to restore the competitiveness of its core coffee business. The company is reviewing a sale of its stake in its Japanese unit and has decided to close about 250 underperforming stores in North America as part of efforts to cut costs and improve efficiency.