Coca-Cola is buying the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion U.S.) in cash, a deal that will see the soft drinks company plug a big hole in its portfolio, it was reported on Friday, Aug. 31.
Coca-Cola plans to use its existing infrastructure to expand Costa's business lines, which include retail outlets, vending machines and coffee for use at home.
Whitbread acquired the chain in 1995, for £19 million when it had only 39 shops.
The deal would bolster Coca-Cola's efforts to become a "total beverage company", according to investor presentation materials, moving the business away from its traditional reliance on sugary, carbonated drinks. Coca-Cola CEO James Quincey said the Costa deal is a "serious and significant investment" in hot beverages, a market that still remains largely fragmented. "Costa gives us access to this market with a strong coffee platform". In recent years, Whitbread has invested heavily in Costa's expansion overseas. The company also owns Brewer's Fayre, Beefeater and Table Table restaurants, as well as the budget hotel chain Premier Inn. Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets. Costa is Britain's biggest coffee company with over 2,400 coffee shops in the United Kingdom and another 1,400 in more than 30 countries.
Now owned by parent company Whitbread, the Costa chain is about to be sold to Coca-Cola. JAB, the holding company that owns Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May.
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.
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The move will also help it to expand its Premier Inn chain in the United Kingdom and Germany.
"Coca-Cola are one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Whitbread's share price soared 14 percent.
While the bulk of the proceeds will be returned to shareholders, it will use some of the cash to pay down debt and address its 350 million-pound pension deficit, to give it the flexibility to continue expanding its Premier Inn hotels in the United Kingdom and Germany, which will become its main business.
Coca-Cola shares were slightly down Friday in mid-morning trading.