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Boyu Capital to hold up to 60% interest in joint venture

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Starbucks' ( SBUX ) market share in China fell to 14% from 34%

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Tie-up follows similar deals by global firms like

McDonald's

(Adds local competition context in paragraphs 4, 7-10; previous

foreign firm divestments in paragraph 14.)

By Kane Wu, Waylon Cunningham and Casey Hall

Nov 3 (Reuters) - Starbucks ( SBUX ) said on Monday it

would sell control of its China operations to investment firm

Boyu Capital in a deal valued at $4 billion, in one of the most

valuable divestments of a China unit by a global consumer

company in recent years.

Under the agreement, the companies will operate a joint

venture, with Boyu holding an interest of up to 60% in

Starbucks' ( SBUX ) retail operations in China.

Starbucks ( SBUX ) will retain a 40% interest in the joint venture

and will continue to own and license the brand and intellectual

property to the new entity, the companies said.

The Seattle-based company's market share in China has

declined in recent years due to fierce competition from local

coffee chains - including Luckin and Cotti - that

offer cheaper products. Starbucks ( SBUX ) has grappled with remaining

competitive without dropping its own prices as an economic

slowdown in China makes consumers more price sensitive.

Starbucks ( SBUX ) said it expects that proceeds from the sale,

combined with its retained stake and licensing over the next 10

years, will total more than $13 billion.

The company's shares were up about 3% in after-hours

trading.

Starbucks ( SBUX ) essentially created the market for coffee in

China after entering in 1999, but its market share in the

country - home to more than a fifth of its cafes - fell sharply

to 14% last year from 34% in 2019, according to data from

Euromonitor International.

To counter these challenges, the chain has cut prices for

some non-coffee beverages and accelerated the introduction of

new localised products.

Acknowledging it would be a mistake for Starbucks ( SBUX ) to

enter into an aggressive price war with the likes of Luckin,

analysts have said the company should

focus on

its traditional strength of being the coffee chain where

people want to meet and spend time.

Luckin now has more than 20,000 franchise stores across

China, well ahead of the 7,800 stores operated by Starbucks ( SBUX ), but

its focus is on take-away and delivery.

Comparable-store sales in China increased 2% in the quarter

that ended on June 29, versus zero growth in the previous

quarter.

Beyond China's slowing economy, Starbucks' ( SBUX ) annual filing for

2024 also listed among its risk factors "escalating U.S.-China

tension," citing possible tariffs, boycotts and "increasing

political sensitivities in China."

The deal caps a global financial drama that became public

more than a year ago when former CEO Laxman Narasimhan said the

company was in the early stages of exploring strategic

partnerships to boost growth in the Chinese market.

Other global firms have taken a similar approach with their

China businesses in the past. McDonald's, for example,

sold a majority stake in its China and Hong Kong operations to

investors including Citic, a tie-up that has largely been seen

as successful.

Boyu was founded in 2010 by, among others, Alvin Jiang,

grandson of former Chinese President Jiang Zemin. The Hong

Kong-based firm invests in consumer and retail, financial

services, healthcare and media and technology sectors, according

to its website.