On Thursday, following reports that Starbucks was considering acquiring the casual fast-food chain Chipotle, the stock price of Chipotle Mexican Grill rose by nearly 7%.

According to a report by Reuters citing the British "Financial Times," Starbucks has collaborated with consultants on potential proposals regarding Chipotle. Neither company has publicly confirmed that formal negotiations are underway, and it is still unclear whether Starbucks has submitted a bid.

Market reactions were clearly divided. As investors factored in the potential acquisition premium, the price of CMG rose; however, as potential transaction costs and financing needs came into focus, Starbucks' stock price fell.

Brian Niccol may return to Chipotle

If the transaction is completed, there will be an unusual level of connection among the senior management.

Starbucks CEO Brian Niccol led Chipotle from 2018 to 2024, after which he resigned to take charge of this coffee chain company. During his tenure, the sales volume, profit margin, and market value of Chipotle all expanded significantly.

Since his departure, Chipotle has continued to see investment growth, including a recent collaboration with Palantir to focus on advancing food safety monitoring at the restaurant level.

This history indicates that Starbucks has an exceptionally in-depth understanding of this potential acquisition target.

CMG Why is the stock price rising?

For the shareholders of Chipotle, the logic behind this is relatively simple.

Acquisition transactions are usually completed at a premium higher than the unaffected stock price of the target company. Even in the absence of an official offer, as long as there are reports that a larger strategic buyer is considering an acquisition, investors may immediately factor in some probability of a higher offer into the stock price.

Before the acquisition news broke, CMG was already under pressure. Recently, there has been a sell-off in the catering stocks sector, with inflation and weakened consumer spending dragging down the entire sector, which also hit this stock.

This makes the current moment particularly noteworthy: after a significant reset in valuation, Starbucks may be evaluating Chipotle.

The $41 billion acquisition will come at a high cost.

The bigger question is, how will Starbucks foot the bill for this transaction.

Before the acquisition news emerged, Chipotle was valued at approximately $41 billion, which means that any successful acquisition would likely require an additional premium on top of this amount.

This may force Starbucks to rely on large-scale additional debt, issuing stocks, or a combination of both to finance itself.

The importance of financing lies in the fact that Starbucks itself is still in a process of restructuring. According to the turnaround plan outlined in Brian Niccol, the company has been closing around 250 stores in North America while investing funds in upgrading cafes and improving operations. Recent store closures indicate that management is still actively working to reshape its core business.