Starbucks has reportedly explored buying Chipotle Mexican Grill, but investors are split on whether the megadeal would make sense for both companies.
The coffee giant has been working with advisers on a takeover proposal of the fast-casual chain in recent months, the Financial Times reported on Thursday, citing people familiar with the matter.
If Starbucks bought Chipotle, it would combine two of the largest U.S. restaurant chains. With about $31 billion in annual domestic sales, Starbucks is the second-biggest U.S. chain by sales. Chipotle sits in the number seven spot, with more than $11 billion in annual system-wide sales in its home market.
The report sent Chipotle stock up about 7% in afternoon trading, while shares of Starbucks fell roughly 4%. It is not unusual for deal rumors to lower the potential acquirer's value and increase the target's share price, but investor reactions show that a prospective takeover comes with pros and cons for each side of the deal.
To be sure, it is unclear if Starbucks will even pursue the takeover. D.A. Davidson analyst Matt Curtis wrote in a note to clients on Thursday that he views the odds of a deal being completed as "relatively low" — about 20%.