The board of directors at Mondelez International, Inc. (MDLZ) recently authorized to increase its share buyback program by a massive $1.7 billion.
The total share repurchase authorization now adds up to $7.7 billion, up from $6 billion, to be bought by 2016. Mondelez also entered into an accelerated share repurchase agreement to purchase shares worth $1.7 billion. The accelerated buyback is expected to be completed by the second quarter of 2014.
The buybacks will be funded by the net proceeds of the arbitration award that Starbucks Corporation (SBUX) will pay under a dispute settlement announced last month. Starbucks will pay $2.76 billion to Kraft Foods Inc. against the settlement of the year-long distribution agreement dispute.
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Mondelez will receive the indemnity as Kraft Foods was split into two separate companies — Mondelez and Kraft Foods Group, Inc. (KRFT) — in October last year. While Mondelez took old Kraft’s food and snacks business, Kraft Foods Group got the North American grocery business.
Per the distribution agreement, old Kraft looked after the distribution and marketing of certain Starbucks and Seattle’s Best Coffee branded packaged coffees in grocery channels. In fiscal 2011, Starbucks took back its packaged coffee business from old Kraft on grounds of breaching the contract and not marketing its products properly.
However, Kraft denied Starbucks’ accusations and commenced a federal court action against the latter in Dec 2010 demanding damages worth $2.9 billion.
Starbucks has been ordered by an arbitrator to pay Mondelez $2.23 billion in damages in addition to $527 million in pre-judgment interest and attorneys’ fees to settle the dispute.
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Mondelez carries a Zacks Rank #3 (Hold). Ever since the split from Kraft, Mondelez has been under pressure and posted disappointing results.
Last month, Mondelez reported dismal third-quarter 2013 results, managing to meet the Zacks Consensus Estimate for earnings but missing the same for revenues due to weak performance in China. The company also lowered its organic revenue guidance for 2013 as the present headwinds are expected to continue.
A better-ranked stock in the food/beverage industry is Omega Protein Corporation (OME), carrying a Zacks Rank #1 (Strong Buy).