Coca-Cola to buy Costa Coffee for $5.1 billion

Dwayne Harmon
August 31, 2018

The company will buy the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash.

Coca-Cola is increasing its caffeine quotient with plans to acquire the Costa coffee chain of the United Kingdom for $5.1 billion. Costa has close to 4,000 retail outlets worldwide and is described by Coca-Cola in its statement as having "highly trained baristas" and "state-of-the-art roastery".

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.

"Costa also provides Coca-Cola with strong expertise across the coffee supply chain, including sourcing, vending and distribution", the soft drinks giant added.

Whitbread acquired Costa in 1995 for £19 million from founders Sergio and Bruno Costa when it had only 39 shops. It has invested heavily in Costa's expansion overseas recently, but had been looking to siphon off the business to generate funds for the expansion and for its other business, the budget hotel chain Premier Inn.

Brittain, who has led Costa-owner Whitbread (WTB.L) since December 2015, didn't know James Quincey before the Microsoft CEO Summit in Seattle. Coca-Cola is getting into the coffee business.

Proceeds of the sale will be used to pay down debt and boost the pension fund.

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"They have been scanning for a coffee acquisition and they have been doing work on Costa for quite some time", she said. But it seems Coca-Cola swung in with an offer that was much more lucrative for Whitbread: the deal is worth £3.9 billion.

Nicholas Hyett, an equity analyst at London-based stockbrokers Hargreaves Lansdown, said Costa will get "lots of care and attention" from Coca-Cola.

The coffee brand will help Coca-Cola achieve its goal of being a total beverage company that sells everything from water to sports drinks, he said.

"The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders", Whitbread chief executive Alison Brittain said in the statement.

It completes a years-long streamlining of FTSE 100 leisure group Whitbread that will leave it focused on its Premier Inn hotel chain.

Shares in Whitbread jump nearly 20% at the open on the news.

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