Key Points
Starbucks fell as much as 6% intraday Thursday after the Financial Times reported it has worked with advisers on a possible takeover of Chipotle. It pared most of that loss to close down 0.4% at $93.21.
Chipotle jumped 6.2% to $32.68, after rising as much as 8% intraday on the report.
A deal would be the biggest in restaurant history, topping Burger King's $11.4 billion purchase of Tim Hortons in 2014.
An OpenAI revenue report sank AI stocks, pushing the Nasdaq down 1.3% while the Dow edged higher.
Brian Niccol may be trying to go home again.
On Thursday, the Financial Times reported that Starbucks has worked with advisers in recent months on a possible takeover of Chipotle Mexican Grill, the burrito chain Niccol ran for six years.
The market gave its verdict within minutes. Chipotle shareholders cheered. Starbucks shareholders headed for the exits, at least for a few hours.
The Deal Nobody Has Offered Yet
It's not clear that Starbucks has made a formal offer, and people familiar with the talks told the FT that a deal may never happen given how complex it would be to combine two consumer giants. Earlier this month, Semafor reported that Chipotle had hired advisers to defend against activists or unwanted takeover approaches, and people close to the company said it had not received a bid.
But the numbers are enormous. Chipotle was worth about $39 billion before the report, and Starbucks about $107 billion, according to LSEG data. Any deal would dwarf the restaurant industry's previous record.
Chipotle closed up $1.91, or 6.2%, at $32.68, adding more than $2 billion in market value. Starbucks fell as much as 6% before buyers stepped back in, and it finished down just 37 cents at $93.21.
Why Starbucks Investors Flinched
Niccol's track record is the reason the idea isn't crazy. At Chipotle, he oversaw six years of rapid growth. When Starbucks hired him in August 2024, its stock jumped 24% in a single day.
Two years later, his "Back to Starbucks" turnaround is still being paid for. Starbucks has renovated more than 1,000 coffeehouses in the past nine months and plans to finish 1,500 or more by the end of the fiscal year. Last month, Niccol declared "the shine is back on Starbucks."
That's exactly why investors flinched. Buying Chipotle would likely require heavy borrowing, issuing new shares, or both.
"A deal could require heavy borrowing or issuing shares," eToro strategist Lale Akoner told Reuters. "Without a compelling financial case, investors may view the deal as an expensive distraction."
One estimate from CTOL Digital puts the math in stark terms: a $20 billion debt tranche would roughly double Starbucks' net debt to about four times earnings before interest, taxes, depreciation and amortization. And this comes as long-term Treasury yields sit near their highest levels in 24 years, making debt-funded megadeals more expensive than at any point in a generation.
Why Chipotle Needs Help
Chipotle has its own problems. In mid-September, the stock fell nearly 6% in a single session after Placer.ai data showed U.S. dining-chain visits dropped 2.4% in August. Second-quarter same-store sales rose just 2.2%.
For Chipotle holders, a buyer led by their former CEO is an attractive way out of a slump.
AI Stocks Get a Revenue Shock
The bigger hit to the market came around 1 p.m. The FT reported that OpenAI told investors its annualized revenue was nearing $50 billion at the end of September, about $20 billion below the $70 billion figure widely reported last month.
The Nasdaq 100 fell more than 300 points in about half an hour. Oracle sank 5.5% to $135.69, Micron fell 4.8% to $1,035.84, and CoreWeave dropped 7.8% to $81.58. AMD lost 3.9% to $620.68, Nvidia fell 2.9% to $230.48, and Microsoft slipped 1.4% to $522.61.
PepsiCo Beats, Then Cuts
PepsiCo, which we flagged as oil hit its grocery bill, earned $2.34 a share on $25.27 billion in revenue, topping the $2.30 and $24.97 billion expected. Organic revenue grew 3.1%, its fastest pace since late 2023. But it cut its full-year core earnings growth forecast to 2.5% to 3.5%, from the low end of 5% to 7%. "We don't feel good about the beverage business," CEO Ramon Laguarta said. Investors focused on the beat. The stock jumped 3.7% to $128.34, trimming a year-to-date loss of about 14%.
Oil, Yields and the Fed
Oil spiked after attacks on tankers in the Strait of Hormuz and reports of possible U.S. strikes on Iran, with Brent topping $104 intraday. Prices eased after President Trump said there would be no attack on Iran before the midterms, but still ended sharply higher. Brent settled up about 3.2% near $103.40 a barrel, and U.S. crude gained about 2.8% to roughly $90.76. Refiners rallied: Marathon Petroleum rose 4.8% to $463.34.
Fed Governor Christopher Waller said more rate hikes are needed, but added that they "do not need to come at consecutive meetings," leaving the door open to a pause in October. He also pointed to evidence that the economy is strengthening in the second half of the year. The Treasury sold $22 billion of 30-year bonds at 5.618%, with demand above average. Bonds rallied. The 10-year yield fell to about 5.23% from 5.29% Wednesday, and the 30-year dropped to about 5.61%.
The Nasdaq fell 345 points, or 1.3%, to 27,193.34. The S&P 500 lost 0.5% to 7,765.36, while the Dow, helped by consumer and energy names, edged up 52 points, or 0.1%, to 51,231.64. The VIX, Wall Street's fear gauge, rose 2.2% to 15.41.
What Lands Next
Friday: Delta Air Lines reports before the bell, with Wall Street expecting about $1.76 a share as $100 oil squeezes fuel budgets.
Next week: The big banks open earnings season Oct. 13, and September CPI lands Oct. 14. The Fed meets Oct. 27-28.
Starbucks and Chipotle haven't commented. Until they do, Chipotle trades on hope, and Starbucks trades on what Niccol might be willing to pay.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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