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Starbucks to pay $2.3 billion to Kraft

New York -- Starbucks Coffee Company said it would pay Kraft Foods $2.79 billion to settle a dispute over the coffee-shop chain’s bagged-coffee business.

The payment, ordered by an arbitrator, consists of $2.23 billion in damages and $557 million in interest and attorneys’ fees. The company said it has adequate liquidity, both in the form of cash on hand and borrowing capacity, to fund the payment and will book it as a charge to its fiscal 2013 operating expenses.

Starbucks’ dispute with Kraft began in March 2011, when Starbucks prematurely scrapped a contract with Kraft that permitted Kraft to sell bagged Starbucks coffee in grocery stores.

Starbucks left little doubt it did not agree with the outcome.

"We strongly disagree with the arbitrator's conclusion," said Troy Alstead, CFO, Starbucks, in a statement. "We believe Kraft did not deliver on its responsibilities to our brand under the agreement."