Coca-Cola buys Costa Coffee from Whitbread for £3.9bn

Costa Coffee

Costa Coffee will be sold to Coca Cola in a massive £3.9 billion deal

While Costa does not compete in the US market, it is the U.K.'s leading coffee chain and operates several hundred outlets in China.

Since being bought by Whitbread in 1995 for just £19m Costa has grown to become the UK's largest coffee chain and the second largest internationally behind Starbucks, with 2,400 outlets and a further 1,400 scattered around the world in 31 foreign markets.

For Coca-Cola, the deal adds to its efforts to move away from fizzy drinks towards more healthier options for increasingly health-conscious consumers.

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

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Following pressure from activist shareholders, Whitbread revealed in April that it would spin off Costa, leaving it to concentrate on its hotel chain Premier Inn. "A significant majority" of the proceeds will be given to the shareholders, the firm added. Coca-Cola's chief rival Pepsi announced earlier this month that it would buy Israeli DIY seltzer company SodaStream for $3.2 billion.

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.

"It recognises the strategic value we have developed in the Costa brand and its global growth potential and accelerates the realisation of value for shareholders in cash".

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

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"However, the growth story needs to be looked at because Whitbread has chose to change tack, shifting away from a demerger that it said would let the coffee and hotel chains grow more rapidly in favour of a quick sale".

"Coca-Cola are one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown. The move will also help it to expand its Premier Inn chain in the United Kingdom and Germany.

Hot beverages, he said, is one of "the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand". "Costa will get lots of care and attention".

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