Caffeine high: Coca-Cola to buy Costa from Whitbread in £4bn transaction
Coca-Cola is set to buy high street coffee chain Costa for £3.9bn.
The fizzy drink giant wants to add coffee to its drink line up, and has moved for Costa following owner Whitbread’s announcement earlier this year that it intends to spin the hot drink business off.
Whitbread, which bought the chain for just £19m in 1995, hopes the sale will help reduce its debt as well as bumping up its pension pot, though a “significant majority” of cash from the sale will find its way to shareholders.
It will also leave the company with more money to invest in expanding its Premier Inn hotel business in the UK and Germany.
Shares in Whitbread soared 17 per cent on the news to £47.15 in early morning trading.
Alison Brittain, Whitbread chief executive, said the sale value “represents a substantial premium” on what Whitbread would have gained from de-merging Costa.
Costa will also gain from fresh investment from Coca-Cola if shareholders approve the deal, Brittain said.
“This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas,” she added.
Coke owns a string of fizzy drink and energy drink brands like Sprite, Fanta, Glaceau Water and Powerade.
Coca-Cola president and chief executive James Quincey said he wants to turn Costa into a worldwide brand through its established distribution, marketing and vending platform.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” he said. “Costa gives us access to this market through a strong coffee platform. I'd like to welcome the team to Coca-Cola and look forward to working with them.”
If shareholders approve the transaction it is expected to complete in the first half of 2019.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, called it a bittersweet moment for Whitbread shareholders.
"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," he said.
"On the other, Costa has long 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.
But he expects Coca-Cola to give the brand "lots of care and attention", resulting in explosive growth.