Tuesday, 18 December, 2018

Coca-Cola to buy UK’s Costa Coffee chain for $5.1 billion

The current owner Whitbread announced a plan to spin off Costa earlier this year The current owner Whitbread announced a plan to spin off Costa earlier this year
Kelvin Reese | 31 August, 2018, 17:58

COCA-Cola is buying the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash, a deal that will see the soft drinks company plug a big hole in its portfolio. Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets.

Whitbread bought Costa for 19 million pounds in 1995, when it had just 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.

"Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand", said James Quincey, Coca-Cola President & CEO. It will give Coca-Cola "a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion", Coca-Cola said in a statement.

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

Whitbread chief executive Alison Brittain said the sale will allow it to focus on its Premier Inn hotels business.

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Neil Wilson, chief market analyst at Markets.com, said: "The price looks like investors will get more bang for their buck than they would have done with a simple demerger".

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

The company said net cash proceeds from the transaction are expected to be around £3.8 billion (Rs 35,100 crore), after deducting estimated transaction costs and separation costs. As of April, Whitbread was planning to slowly spin off Costa.

Shares in Whibread surged nearly 20% on the news, adding more than £1bn to the group's stock market value, as analysts said the price was substantially higher than expected.

"On the one hand £3.9 billion 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".

The Press Association reported in May that Whitbread had been approached informally over a potential buyout of Costa. The company also owns Brewer's Fayre, Beefeater and Table Table restaurants, as well as the budget hotel chain Premier Inn.

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