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Caffeine hit for Coca-Cola as it buys Costa coffee chain

31 August, 2018, 20:39 | Author: Sara Gill
  • Costa Coffee will return most of the proceeds from the Coca Cola to shareholders

Whitbread acquired Costa in 1995 for £19m when it had 39 shops.

Coca-Cola said Friday it will buy the Costa brand from Whitbread for 3.9 billion pounds ($5.1 billion) in cash.

Describing the sale as a "win-win" for everyone, she said the price paid by Coca-Cola was far higher than if Costa had been demerged into a stand-alone company on the stock market.

While Costa does not compete in the USA market, it is the U.K.'s leading coffee chain and operates several hundred outlets in China. It is second most popular in the Chinese market with over 400 coffee shops around the most populous country in the world.

Coca-Cola president James Quincey welcomed the acquisition, saying: "Costa gives Coca-Cola new capabilities and expertise in coffee".

While Coca-Cola does serve ready-made coffee from vending machines in Japan, it does not have a hot-drink category.

"Over the last 20 years coffee has changed from a commodity into a lifestyle product as first of all consumers in western markets woke up to its appeal thanks to branded chains like Starbucks and Costa", said Jeffrey Young, the chief executive of coffee analysts Allegra Group.


Rival PepsiCo, meanwhile, recently bought carbonated drink maker SodaStream, which produces machines that allow people to make fizzy drinks in their own homes. But it seems Coca-Cola swung in with an offer that was much more lucrative for Whitbread: the deal is worth £3.9 billion.

Whitbread said it will use the money to reduce its debt, increase its contribution to the pension fund and return a "significant majority" to shareholders.

Whitbread's share price was up nearly 16 per cent to £46.56 following the announcement, while London's benchmark FTSE 100 index on which it trades was down 0.3 per cent.

For Costa, Hyett said Costa will get "lots of care and attention" from Coca- Cola.

"Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn't have a killer brand", he said.

A significant majority of net cash proceeds meant to be returned to shareholders, Whitbread added. The company also owns Brewer's Fayre, Beefeater and Table Table restaurants, as well as the budget hotel chain Premier Inn.

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