Starbucks Corp said on Tuesday an arbitrator has ruled that it must pay Kraft Foods $2.23 billion in damages plus $527 million in prejudgment interest and attorneys fees after the coffee chain's early termination of the companies' grocery deal.
Mondelez International Inc spun off Kraft Foods Group, its North American grocery operations as an independent company in October 2012. Under an agreement between those two companies, the proceeds from the Starbucks dispute will go to Mondelez.
Shares in the Starbucks were down 1.7 percent to $79.28 in extended trading. Mondelez shares were virtually unchanged at $32.42.
"We strongly disagree with the arbitrator's conclusion," Starbucks said in a statement.
Starbucks has adequate liquidity both in the form of cash on hand and available borrowing capacity to fund the payment, which will be booked as a charge to its fiscal 2013 operating expenses, the company said in a statement.
Kraft began selling bags of Starbucks coffee in grocery stores beginning in September 1998. Starbucks prematurely ended the contract in March 2011 and gave the business to privately held Acosta Inc.
Starbucks accused Kraft of multiple material breaches of contract, including mismanaging the brand. Kraft denied any breach and said that if Starbucks wanted out, it must pay Kraft fair value for the business, which brought in $500 million a year in revenue.
The deal's initial term was set to expire in March 2014. The agreement was to renew automatically for successive 10-year terms unless sooner terminated per the agreement.