Howard Schultz's impending arrival at Starbucks complicates Elliott's constructive engagement.

• Starbucks CEO Laxman Narasimhan will retain his position with the company after a settlement was reached with Activist Elliott Management.
• According to sources, the Starbucks board has not yet responded to Elliott's proposal.

According to sources, before news broke that Elliott Management had accumulated a substantial share in , the activist investor put forth a proposal for a settlement that would entail board enlargement and enhanced governance but would enable CEO Laxman Narasimhan to retain his position.

Weeks ago, Elliott submitted its offer to Starbucks, but the coffee chain's board, led by Mellody Hobson, has not responded, according to sources who requested anonymity due to the confidential nature of the matter.

The Financial Times reported earlier that Starbucks' former CEO Howard Schultz, who left the board last year but remains a top shareholder, has privately expressed opposition to Elliott's settlement offer to some directors.

A Starbucks representative refused to confirm if Schultz, who is close to Hobson and other Starbucks directors, had participated in board meetings where Elliott's settlement proposal was discussed.

Elliott has amassed a stake worth up to $2 billion in the company, according to CNBC's previous report. No official disclosure has been made regarding Elliott's stake in the company, and it is unknown what specific governance changes Elliott is seeking. A spokesperson for Elliott declined to provide any comment.

Schultz has been critical of the company's direction under Narasimhan, who has focused on discounting and new product launches to revive the business since taking over in March 2023. Schultz has not disclosed the reason for opposing Elliott's offer, and his representatives did not respond to multiple requests for comment.

Despite experiencing declining sales in China and a weak U.S. business, Starbucks' stock price has fallen by 18% this year, underperforming the broader market's 16% increase.

In a LinkedIn post in May, Schultz wrote that at any company that misses badly, there must be contrition and renewed focus and discipline on the core. A month later, Schultz appeared on the Acquired podcast and criticized Starbucks' execution and performance under his successor.

Starbucks has acknowledged Elliott's involvement, though it's offered scant details.

The negotiations between the company and Elliott are complicated by Schultz's contractual privileges and lingering cultural influence at the company he joined more than 40 years ago.

Since his first retirement in 2018, Schultz has had observer rights that allow him to participate in discussions about Elliott's offer. Elliott is a well-known activist investor who frequently wins board seats and successfully removes underperforming CEOs. Currently, the firm is launching a campaign to remove the chairman and CEO of .

Despite recent earnings misses under Narasimhan, Elliott has not shown any indication of seeking a change at Starbucks, according to sources. However, the uncertainty surrounding Schultz's succession planning and the questions raised about who is actually calling the shots at the company underscore the saga.

When Schultz assumed the chair role in 2020, she praised Hobson as a longtime "trusted advisor."

They have warmly described their relationship over the years. Hobson was introduced to Schultz by former Senator Bill Bradley of New Jersey in 2005. Schultz, then a director at DreamWorks Animation, later introduced Hobson to co-founder Jeffrey Katzenberg, who told Fortune it took only five seconds for him to realize he wanted her on that board as well.

Schultz served as CEO of Starbucks from 2000 to 2008, then again from 2017 to 2022. He handed over leadership to Narasimhan, the former CEO of British conglomerate, in early 2021 and stepped down from the board in September. He is now chairman emeritus.

Schultz is prohibited from revealing confidential information he obtained through his observer rights and has consistently stated that he has no intention of returning to the position for a fourth term.

He stated on his Acquired appearance that he had conveyed to Laxman, "Howard Schultz has no intention of returning as CEO of Starbucks."

— CNBC's Kate Rogers and Amelia Lucas contributed to this report

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