Coca-Cola buys British coffee chain Costa for $5.1 billion

02 September, 2018, 02:00 | Author: Sheri Evans
  • The current owner Whitbread announced a plan to spin off Costa earlier this year

Coca-Cola is to plug a gap in its portfolio with the acquisition of the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash.

Whitbread had plans to spin out the Costa brand, but the sale to Coca-Cola has come as something of a surprise to many in the market, given that Coca-Cola has no presence in coffee.

For its part, Coca-Cola is keen to broaden its beverage range from soft drinks to coffee having already introduced a range of Japanese alco-pops.

Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth £3.9bn.

Still, Costa outranks Starbucks in the United Kingdom - it also operates a business of 8,000 self-service machines - and is expanding in markets such as China.

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Coffee has been one of the frothiest markets for mergers and acquisitions activity over the past year, as competition between Swiss group Nestlé and JAB Holdings - the private investment group that manages the wealth of Germany's billionaire Reimann family - has heated up.

Paying about 1 billion pounds ($1.3 billion) more than some analysts had expected, Coke will use its distribution network to supercharge Costa's expansion as it chases current coffee chain market leader Starbucks and its nearly 29,000 stores across 77 markets.

Costa Coffee has been sold to Coca-Cola for £3.9 billion, it has been announced.

The proposed deal is expected to close at the end of summer 2019, Coca-Cola said, if it gains regulatory approval in the European Union and China. "Costa has strengths in many countries and in many key distribution channels of the coffee business". Costa would also be able to expand into ready-to-drink categories using Coke's expertise and marketing heft, making the two businesses "remarkably complementary".

McKevitt notes that Coke "doesn't now have any coffee outlets in its arsenal and this is an opportunity for the business to plug that gap and tap into this growing market".

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Some of the proceeds will go towards reducing Whitbread's pension deficit and financial debt to ease expansion of the Premier Inn hotel chain in the United Kingdom and Germany, but Brittain said a "significant majority" of the cash would go to shareholders.

Nestle joined the trend of coffee giants taking aim at smaller niche producers, buying Blue Bottle Coffee and Chameleon Cold Brew.

Earlier this year, Nestle and Starbucks agreed a $7.2 billion global coffee alliance, which will see Nestle market, sell and distribute Starbucks products outside its stores worldwide. And another of JAB's coffee brands, Keurig, merged with Dr Pepper Snapple in January.

"It's also a category with many different elements, from vending to coffee shops to roast-and-ground to instant to pods and capsules".

Bankers from Rothschild advised Coke, while Whitbread used Goldman Sachs, Morgan Stanley and Deutsche Bank.

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