Starbucks has worked with advisers on a possible takeover, according to people familiar with the matter. Chipotle rose about 7% and Starbucks fell about 4%, a net loss of roughly $1.5 billion in combined market value.
The first market verdict on a possible Starbucks bid for Chipotle Mexican Grill was a gain for the target and a bigger loss for the would-be buyer.
Starbucks has worked with advisers in recent months on a possible takeover of Chipotle, according to people familiar with the matter. Whether an offer has been made could not be determined, and a deal may not happen. Neither company has issued a statement or a filing.
The reaction in dollars
Chipotle traded at about $33.03 in early afternoon, up about 7.3%, giving it a market value near $42.4 billion. Starbucks fell about 4.2% to $89.69, after dropping as much as 6.7% in the morning, leaving it worth about $102.2 billion.
In dollar terms, Chipotle added about $2.9 billion of market value. Starbucks lost about $4.4 billion. Taken together, the two companies were worth roughly $1.5 billion less than before the report.
When an acquirer's shares fall on news of a possible deal, investors are often weighing the price it would have to pay and how it would pay it. Neither is known here.
The size
Before Thursday's move, Chipotle was valued at about $39 billion. A takeover at or above that level would be more than three times the size of Burger King's $11.4 billion purchase of Tim Hortons in 2014. It would also equal more than a third of Starbucks' own market value, which stood near $107 billion before Thursday's decline.
The Niccol connection
Starbucks Chief Executive Brian Niccol ran Chipotle for about six years before joining Starbucks, where he is now partway through a turnaround.
Brian Jacobsen of Annex Wealth Management called the timing "a little weird" with Starbucks still mid-transformation.
Peers
Other restaurant stocks rose. McDonald's gained about 2.6%, Cava about 3.4% and Restaurant Brands International about 1.6%, while the consumer discretionary sector was roughly flat.
Competing views
One reading is that a combination would pair a chief executive with a proven Chipotle record and a buyer with the scale to fund growth, and that Chipotle shareholders are only beginning to price a premium.
Another reading is that Starbucks investors are signaling resistance: a deal of this size would come in the middle of a turnaround, would likely require a large amount of new stock or debt, and the stock's decline suggests a reluctance to fund it.
Confirmation
A statement from either company, a filing, or a proposal letter would turn the report into a transaction with terms. Without one, Chipotle's gain rests entirely on the possibility of a bid.