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Coca-Cola to boost coffee segment with US$5.1bn Costa Coffee acquisition

02 September, 2018, 13:24 | Author: Lawrence Cooper
  • Costa Coffee

Costa has almost 4,000 stores across 32 countries.

Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth £3.9bn, BBC News reports. But the Costa acquisition gives it a much bigger piece of the coffee market, which is growing by 6 per cent a year, according to James Quincey, Coca-Cola president & CEO.

Paying about 1 billion pounds (US$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.

"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 added. And in May, Nestle paid more than $7 billion for the rights to sell Starbucks coffee and tea in supermarkets and other stores outside its coffee shops.

Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn business in the United Kingdom and Germany. JAB, the Luxembourg-based holding company that owns brands like Krispy Kreme and Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May.

"An excellent deal it may be, but Whitbread investors may miss the caffeine highs Costa serves up", said Nicholas Hyett, equity analyst at London-based stockbrokers Hargreaves Lansdown.

Without being specific about expansion plans, Quincey said in a video posted on Coca-Cola's website that the company would "over time" look to take Costa "to more people in more places".

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Whitbread had been in the process of demerging Costa from its hotel group Premier Inn, and the sale marks the latest transformation in a business that was established in 1742 as a brewer and which has also owned sports clubs and restaurants.

Whitbread acquired Costa in 1995, for £19 million when it had only 39 shops and successfully grew the business to be the UK's favourite and largest coffee shop company.

The deal still needs to get approval from shareholders and regulators, and is expected to be completed in the first half of 2019, the companies said.

Whitbread had meant to spin off the chain as a separate firm, but said a straight sale was more profitable.

Shareholders in Whitbread were impressed by the deal and the company's share price soared 16 percent in morning trading in London.

"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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