Coca-Cola to buy Costa Coffee for £3.9bn

Posted August 31, 2018

Coca-Cola is buying the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion U.S.) in cash, a deal that will see the soft drinks company plug a big hole in its portfolio, it was reported on Friday, Aug. 31.

While Costa does not compete in the USA market, it is the U.K.'s leading coffee chain and operates several hundred outlets in China.

Whitbread acquired Costa in 1995 for £19 million from founders Sergio and Bruno Costa when it had only 39 shops.

For Coca-Cola, the deal adds to its efforts to move away from fizzy drinks towards more healthier options for increasingly health-conscious consumers.

After missing out on the heady growth phase of coffee shops, Coca-Cola is entering when the market in countries like the United Kingdom and the U.S.is crowded.

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Proceeds of the sale will be used to pay down debt and boost the pension fund. As such, Whitbread was planning to demerge Costa from the parent company, spinning it off into a firm of its own.

Whitbread's share price soared 17 per cent in early afternoon trading in London.

"Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide", said Coca-Cola President and CEO James Quincey.

Describing the sale as a "win-win" for everyone, she said the price paid by Coca-Cola was far higher than if Costa had been demerged into a stand-alone company on the stock market.

Costa Coffee will return most of the proceeds from the Coca-Cola to shareholders.

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Coca Cola is to buy coffee chain Costa for £3.9 billion.

Costa doesn't now have a presence in North or South America, but Quincey indicated that one potential early expansion route would be to use Costa's vending operation and grow the company's ready-to-drink products.

"On the one hand, £3.9bn is an undeniably rich valuation and likely far better than Costa could achieve as an independently listed company, valuing its earnings higher than those of the mighty Starbucks", he said.

"On the other, Costa has always been the jewel in Whitbread's crown and some will be sad to see it go at any price, especially given the growth potential in China and elsewhere". Premier Inn has 785 hotels in the United Kingdom and a sprinkling of others in Germany and the Middle East.

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