Whitbread agrees to sell Costa Coffee for £3.9 billion to Coca-Cola

Whitbread agrees to sell Costa Coffee for £3.9 billion to Coca-Cola

Coca-Cola has announced a surprise move to buy Costa Coffee, one of the UK's largest cafe chains, from current owners Whitbread for £3.9 billion ($5.1 billion). It is now present on most British high streets, with 2,422 outlets across the country and a further 1,399 in worldwide markets, operated as franchises, joint ventures and wholesale outlets.

Whitbread bought the chain back in 1995 when it was just made up of 39 outlets.

Joining the Coca-Cola portfolio, Costa is a leading coffee brand first founded in London in 1971 that has since grown to include almost 4,000 retail outlets, a coffee vending operation, roastery, and home-brewed coffee formats. "Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand".

So Costa Coffee as we know it may soon change - and will undoubtedly sell more Coke than it used to.

The coffee shop to hotels group said earlier this year that it would split Costa and list it as a separate entity, following pressure from activist investor Elliott.

Whitbread added that it intends to return a significant majority of net cash proceeds to shareholders. As such, Whitbread was planning to demerge Costa from the parent company, spinning it off into a firm of its own.

Whitbread shares soared the most in 19 years as analysts said the business fetched a surprisingly high price.

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"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 said.

For Costa, Hyett said Costa will get "lots of care and attention" from Coca- Cola.

It has recently expanded into China after growth in Britain became harder to find in a market bursting with chains such as Starbucks, Caffe Nero and thousands of independent outlets.

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.

"Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn".

Rothschild advised Coke on the deal while Goldman Sachs, Morgan Stanley and Deutsche Bank advised Whitbread.

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