Nestle is paying more than $7 billion to buy the rights to sell Starbucks coffee and tea in supermarkets and other stores outside its coffee shops.
Nestle chief executive Mark Schneider, who in 2016 became the first outsider to run Nestle in nearly 100 years and who is attempting to boost the company's profit through expansion, described it as a "significant step".
But Nestle says the brand makes about $2 billion in sales per year.
Nestle is to use the Starbucks brand in its Nespresso and Dolce Gusto capsule systems next year. The coffee company is also expecting the offer to accretive to its earnings per share by the end of its fiscal year for 2021.
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"However, Nestle's leadership position is less secure than it once was". And a year ago, Nestle bought a majority stake in high-end coffee company Blue Bottle.
Starbucks, which in April reported a global drop in quarterly traffic to its established cafes, has been revamping its business amid competition in its key home market.
Starbucks is rapidly expanding in China, which it expects to one day be its largest market.
The company's US$425 million purchase of a stake in Blue Bottle Coffee a year ago was a step back into the segment, whose growth prospects have revived as coffee consumers become more sophisticated.
Starbucks has long farmed out the retail distribution of its packaged products to a company more specialised in that process, but the partnerships have not always been smooth.
The deal is Nestle's first tie-up with a major rival in coffee.