• Activist Elliott Management offered a settlement with Starbucks that would allow CEO Laxman Narasimhan to keep his position.
• The Starbucks board hasn't yet responded to Elliott's offer, according to people familiar with the matter.

Days before reports surfaced that Elliott Management had amassed a significant stake in Starbucks, the activist investor proposed a settlement that would involve board expansion and governance improvements but would allow CEO Laxman Narasimhan to keep his job, according to people familiar with the matter.

Elliott submitted its offer to Starbucks weeks ago, but the coffee chain's board, chaired by Mellody Hobson, hasn't responded, said the people, who asked not to be named because the matter is private.

Looming over the negotiations is Starbucks' former CEO Howard Schultz, who stepped off the board last year but remains one of the company's top shareholders and is forever entitled to attend Starbucks board meetings unless barred by Starbucks' directors. Schultz has privately expressed to some directors his opposition to Elliott's settlement offer, The Financial Times reported earlier.

A Starbucks spokesperson declined to comment on whether Schultz, who has a close relationship with Hobson and other Starbucks directors, had attended board meetings where Elliott's settlement offer was discussed.

Elliott has accumulated a stake that could worth as much as $2 billion, CNBC has previously reported. No disclosure has been filed to indicate its stake in the company and it's unclear what specific governance improvements Elliott is seeking. A spokesperson for Elliott declined to comment.

Schultz, meanwhile, has been unusually vocal in his criticism of the company's direction under the leadership of Narasimhan, his hand-picked successor, who has leaned on discounting and new product launches to try and revive the business since taking over in March 2023. Schultz hasn't said why he opposes Elliott's offer, and his representatives didn't return multiple requests for comment.

Starbucks has faced successive quarters of falling sales, with steep declines in China and weakness in the core U.S. business. Starbucks' stock price is down 18% this year, badly underperforming the broader market, as the S&P 500 has climbed 16% in 2024.

"At any company that misses badly, there must be contrition and renewed focus and discipline on the core," Schultz wrote in a LinkedIn post in May. The following month, Schultz appeared on the Acquired podcast, which is popular among business leaders, and took aim at Starbucks' execution and performance under his successor.

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

On Tuesday's earnings call, Narasimhan referred to the conversations between the company and Elliott as "constructive." But the negotiations are complicated by Schultz's contractual privileges and lingering cultural influence at the company he joined more than 40 years ago. 

Schultz's observer rights, which he's had since his first retirement in 2018, extend to discussions about Elliott's offer. Elliott is one of the country's most prominent activist investors, often winning board seats and successfully ousting numerous CEOs it says are underperforming. The firm is currently mounting a campaign to remove the chairman and CEO of Southwest Airlines.

Elliott hasn't yet shown any indication it would seek that kind of change at Starbucks, sources told CNBC, despite successive earnings misses under Narasimhan. But the saga further underscores the uncertainty surrounding Schultz's succession planning and raises questions about who is actually calling the shots at the company.

Schultz lauded Hobson as a decades-long, "trusted advisor" when she acceded to the chair role in 2020.

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

Schultz first left as CEO of Starbucks in 2000, before returning in 2008, departing in 2017, and then coming back for a third and final time in 2022. He handed leadership to Narasimhan, the former CEO of British conglomerate Reckitt, early last year, and stepped down from Starbucks' board in September. He remains chairman emeritus.

Schultz is barred from disclosing privileged information he learns via his observer rights and has repeatedly said he's not interested in returning to the top job for a fourth stint.

"I've made it clear to Laxman, 'Howard Schultz has no desire or intent to return as CEO of Starbucks,'" he said on his Acquired appearance.

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

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