Sizeable Starbucks Stake Snagged by Activist Investor Elliott. But Why?

Elliott Investment Management has taken a huge stake in Starbucks, according to sources familiar with the matter. The activist investment group, most recently known for its investment in the financially beleaguered Southwest Airlines, has a number of potential reasons for its investment. Let’s take a look at what we know about this latest move.

Starbucks Needs a Boost in Its Share Prices

According to an exclusive report by The Wall Street Journal, Elliott Investment Management has increased its holding in Starbucks significantly, and the activist investor has been pressuring the coffee giant in private to raise its stock price.

Insiders familiar with the matter told the outlet that Elliott has been interacting with the business behind the scenes lately. The people stated that since the situation is “fluid,” it’s probable they may quickly come to a private deal.

It was impossible to pinpoint the precise amount of Elliott’s previously concealed position. It was also not possible to find out about Elliott’s other requests, such as whether it is looking for board seats.

Elliott’s investment comes at a critical juncture for Starbucks, the largest coffee company in the world in terms of both locations and sales. Starbucks has long aimed to serve as a gathering spot for its patrons, a “third place” between home and work. However, the company is struggling to keep up as its to-go business is now the main driver of its growth. Another important market where competition has increased is China.

In late April, Starbucks revealed lower-than-expected quarterly sales and earnings along with a significant decline in visits. Increased staff compensation and promotional activities, according to the corporation, hurt its bottom line, but increased prices and improved operational efficiency cushioned the damage. The dismal report caused the Seattle-based company to lower its financial projections for the second time this year, which caused the stock to plunge sharply.

Since reaching a record high in July 2021, Starbucks’ share price has dropped by almost 35%, bringing its market value to nearly $90 billion. Before increasing by about 7% in response to The Wall Street Journal’s article on Elliott’s involvement, the stock had dropped by almost 22% so far this year.

The Latest Investment by Elliott

Starbucks isn’t the only company that is benefitting from the infusion of capital provided by Elliott.

Last month, the activist investment firm, which claims to be trying to bring about significant reforms at the struggling airline, invested $2 billion in Southwest Airlines.

The Wall Street Journal claims that these adjustments are intended to boost the shares of the low-cost airline, which have underperformed by 4% so far this year. Paul Singer’s investment group claims it will meet with high management of Southwest Airlines to discuss the airline’s issues.

Elliott Investment has successfully revived several other early-stage businesses, such as Goodyear Tire & Rubber, NRG Energy, and Crown Castle. The organization has a reputation for swapping around CEOs.

“We believe that new leadership is required at Southwest,” the activist firm reportedly said in a letter to Southwest, according to Reuters.

The airline claimed that its “poor execution” and its leadership’s “stubborn unwillingness” to revise the company’s plan were to blame for the carrier’s dismal performance.

Since the beginning of the COVID-19 pandemic, Southwest Airlines has experienced problems; a critical low point was reached in 2022 when its antiquated technological systems were unable to manage a significant interruption. Before 2020, the airline, which was founded in the 1970s, produced nearly 50 years of profits in a row because of its exceptional customer service and affordable pricing.

Ryan Green, the airline’s chief commercial officer, said the company plans to begin operating overnight flights from Las Vegas and Hawaii. Green admitted that the company still needed to find solutions before the flights began.