Kraft loses court bid to halt Starbucks move

A federal judge rejected Kraft Foods Inc's bid to force Starbucks Corp to keep using Kraft to distribute packaged coffee to supermarkets in North America and Europe, a decision that allows Starbucks to move ahead with a new partner.

In a ruling from the bench, US District Judge Cathy Seibel in White Plains, New York, on Friday also noted that Starbucks could end up owing Kraft "a boatload of money" if an arbitrator decided the coffee chain breached a 1998 agreement with Kraft. Kraft, North America's largest packaged food maker, contended that it would suffer "irreparable harm" if Starbucks, the world's largest coffee chain, went through with its plan to move distribution to privately held Acosta Inc on March 1. "Kraft has not established it will suffer irreparable harm," the judge said after hearing arguments from both sides. Kraft said in a statement that it planned to appeal the decision. Starbucks wants to end its partnership with Kraft and has accused it of multiple material breaches of contract, including mismanaging the brand. Kraft denies any breach and says that if Starbucks wants out, it must pay Kraft fair value for the business, which brings in USD 500 million a year in revenue. "Without proof of material breach, Starbucks' only legitimate termination mechanism is to pay Kraft fair market value for the business, plus a premium," Kraft's statement said. "We believe more strongly than ever that such a payment is the appropriate outcome in this dispute." Some legal experts had said Kraft would have difficulty winning an injunction because they are normally only given in more dire circumstances. Kraft lawyer William Quinn, told the court that the company would face "incalculable" damage and be left at a "possibly permanent competitive disadvantage" if it were forced to scramble to replace the lost sales and store shelf space provided through the Starbucks partnership. But Seibel was left unsatisfied that Kraft did not do more to find a new supplier. She likened the absence of a "Plan B" to a person who does not try hard enough to find a new place to live after being told to vacate his apartment. Sharon Zackfia, an analyst covering Starbucks for William Blair & Co, said, "I bet they have to pay something." She said it was difficult to value the Kraft coffee distribution business. "A lot is based on the strength of the Starbucks brand, which Starbucks owns," Zackfia said. The judge said that for her to intervene, it was not enough that Kraft's business be disrupted. She said customers would continue to buy Kraft products even if they bought Starbucks' products elsewhere. Starbucks spokesman Alan Hilowitz welcomed the decision. "We are hopeful this will bring an end to Kraft's efforts to further confuse our mutual customers and look forward to the transition of the business to Starbucks on March 1 and to the pending arbitration process," Hilowitz said in a statement. Kraft requested the injunction after Starbucks said it wanted to end the partnership. Under the agreement, Kraft distributes Starbucks coffee to an estimated 40,000 grocery stores and other retailers in all 50 US states and Canada, as well as in Britain and Europe. Kraft shares closed at USD 30.53 per share, down 0.3%. Starbucks closed at USD 31.73, down 3.9%. The case is Kraft Foods Global Inc Vs Starbucks Corp, US District Court, Southern District of New York, No 10-09085.