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Coca-Cola to Buy UK Coffee Chain Costa for $5.1 Billion

31 August, 2018, 20:39 | Author: Kristi Dunn
  • Costa Coffee

The Whitbread board unanimously backed the deal, which is expected to close in the first half of 2019.

The board of British multinational Whitbread have unanimously agreed to a £3.9bn takeover of its Costa Coffee subsidiary by Coca-Cola, as it prioritises growth at its Premier Inn brand in the United Kingdom and Germany.

Coca-Cola's planned purchase follows Nestlé's $7 billion licensing deal to sell Starbucks coffee in grocery stores around the world to revitalize its hot-drink business, which experts say has stagnated, especially with younger customers. It now has more than 2,400 United Kingdom coffee shops, as well as some 1,400 outlets in 31 overseas markets.

The research firm Mintel estimated that the global coffee shops market was worth £127.3bn ($165bn) in 2017, while another £43.2bn ($56bn) worth was sold in shops - whether as beans or the increasingly popular pods used by consumers playing barista at home.

"Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide", Coca-Cola President James Quincey said. Coca-Cola's chief rival Pepsi announced earlier this month that it would buy Israeli DIY seltzer company SodaStream for $3.2 billion. Quincey indicated that one potential early expansion route would be to use Costa's vending operation and expand the company's ready-to-drink products.

Then Coca-Cola got in touch with what Whitbread said was a "highly compelling" offer.

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"This is a bitter sweet moment for Whitbread investors", noted Nicholas Hyett, equity analyst at Hargreaves Lansdown.

A significant majority of net cash proceeds meant to be returned to shareholders, Whitbread added.

Shareholders in Whitbread were impressed by the deal and the company's share price soared 16 per cent in morning trading in London.

"Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn't have a killer brand", he added.

Whitbread said it would return cash to shareholders, cut debt and contribute to its pension fund with proceeds from the deal and further expand its hotel chain Premier Inn in Britain and Germany.

Whitbread previously said in April it would split Costa off as a separate firm from Premier Inn.

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