Published: Fri, August 31, 2018
Finance | By Jaime Brady

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

Whitbread had bought Costa for 19 million pounds in 1995, when it had just 39 shops.

Costa owner Whitbread will seek shareholder approval to complete the deal, which is expected to happen by mid-October.

Coca-Cola Co has agreed to buy the world's second largest coffee chain Costa from Britain's Whitbread Plc for an enterprise value of 3.9 billion pounds ($5.1 billion), opening a new front in its push away from traditional sodas.

Coca-Cola's earnings have declined over the last five years from nearly $14 billion (EBITDA) in 2013 to just under $9 billion in 2017, but it still dwarfs Costa, which generated $312 million in EBITDA in its last fiscal year. Costa's maroon shop front is now one of the most ubiquitous sights on British high streets, with 2,422 outlets in the United Kingdom and a further 1,399 in worldwide markets, operated as franchises, joint ventures and wholesale outlets.

Coca-Cola plans to use its existing infrastructure to expand Costa's business lines, which include retail outlets, vending machines and coffee for use at home. Coca-Cola CEO James Quincey said the Costa deal is a "serious and significant investment" in hot beverages, a market that still remains largely fragmented.

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.

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Established in 1742 as a brewer, Whitbread had been in the process of demerging Costa from its Premier Inn hotel chain after it came under pressure from hedge funds.

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

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

Shareholders in Whitbread were impressed by the deal and the company's share price soared 16 percent.

Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn business in the United Kingdom and Germany.

Alison Brittain, the chief executive of Costa's parent company, Whitbread, said the sale will please shareholders because they'll see funds returned to them, it will contribute to the company's pension fund, and it will help pay off company debt, she told CNBC in an interview Friday.

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