Activist involvement is heating up at Starbucks , increasing the likelihood that the coffee chain makes changes necessary to boost its languishing stock price. Jeff Smith’s Starboard Value has taken a stake in Starbucks, The Wall Street Journal reported late Friday. It’s not clear whether the firm will be advocating for changes at the company or simply has amassed a more passive stake. But Starboard has in the past mounted successful campaigns in the restaurant industry, perhaps most notably at Olive Garden parent Darden Restaurants a decade ago and more recently at Papa John’s . Separately, Elliott Management — whose sizable stake in Starbucks came to light last month — is in settlement discussions with the company’s board that could involve Jesse Cohn, a managing partner at the activist hedge fund, joining as a director, CNBC reported Monday. Cohn would potentially fill the board vacancy left by Microsoft CEO Satya Nadella , who resigned May 31 after roughly seven years as a director. This one-two punch of activist news is sending shares of Starbucks higher by more than 2% Monday, to nearly $77 each. Still, the stock is down nearly 20% year to date and roughly 13% since its disastrous second-quarter earnings report April 30 turned the company into a prime target for activists. An Elliott representative such as Cohn on Starbucks’ board would be “meaningful” and give us confidence that someone would press the company’s executives on in-store execution, Jim Cramer said Monday on CNBC. “The problem is operational,” Jim said. We upgraded our rating on Starbucks’ stock to a buy-equivalent rating last month on hopes that Elliott’s presence would lead to positive changes inside the company. If Elliott were to be met with resistance in getting a board seat, Jim noted the firm could fight for representation by launching a proxy battle, though companies usually settle with the activist before it gets to that point. Another avenue Elliott has taken recently is more akin to a friendly board advisor, and Jim suggested that a resolution with Starbucks could take similar shape. Last year, Club holding Constellation Brands entered an information sharing and cooperation agreement with Elliott, allowing the firm to sit in on board meetings and receive certain nonpublic information while agreeing to not trade the stock. This arrangement allows Elliott to make recommendations to management that it believes are good for investors. Board seats aside, Elliott’s exact plan to lift Starbucks’ stock is not known. That’s also the case with Starboard. But the issues weighing on the company’s business and stock price are far-reaching. In its key growth market of China, Starbucks is grappling with intense competition from lower-priced chains and a generally weak consumer. Same-store sales in China fell 14% in its third quarter reported on July 30, even worse than the 11% drop in the prior quarter. The world’s second-largest economy has had a sluggish recovery from the Covid-19 pandemic. While Starbucks’ executives reiterated their commitment to China on the third-quarter earnings call, CEO Laxman Narasimhan said the company was in the “early stages” of exploring strategic partnerships for its operations in the country. Starbucks’ business in North America showed some signs of improvement in the third quarter compared with the dismal second-quarter. Still, the company has hardly resolved operational challenges such as long wait times for orders. This is not the first time Elliott and Starboard have been in a Club stock at the same time. Both firms were simultaneously invested in Salesforce during the crowded activist battle at the enterprise software maker that kicked off in the fall of 2022 and stretched into last year. In a note to clients Monday, Wells Fargo was upbeat on Starboard’s reported presence at Starbucks. Starboard taking a stake alongside Elliott adds “more credibility to the ‘activist team and [puts] operational improvement into scope,” wrote the analysts, who have a buy-equivalent rating and $90 price target on the stock. (Jim Cramer’s Charitable Trust is long SBUX, CRM, MSFT, STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Starbucks Coffee shop in Krakow, Poland on February 29, 2024.
Beata Zawrzel | Nurphoto | Getty Images
Activist involvement is heating up at Starbucks, increasing the likelihood that the coffee chain makes changes necessary to boost its languishing stock price.
