Coca-Cola takes a big sip of coffee with $5.1 bn Costa deal

01 September, 2018, 08:45 | Author: Manuel Hopkins
  • Daniel Berehulak  Getty

Coca-Cola is using the deal to expand into the coffee market, where it has no presence.

The soda giant said Friday it is spending 3.9 billion pounds ($5.1 billion) in cash for Britain's biggest coffee company.

The Atlanta-based beverage giant described the proposed deal as a necessary entryway to the global coffee market.

Coffee is notably missing from.

And for Whitbread investors, it's a deal they cheered on, with the shares soaring the most in nearly two decades, even as Coke shares were muted.

It is now present on most British high streets, with 2,422 outlets across the country and a further 1,399 in global markets, operated as franchises, joint ventures and wholesale outlets.

Whitbread acquired the chain in 1995, for £19 million when it had only 39 shops.

Ms. Brittain, who has led Costa-owner Whitbread since December, 2015, didn't know James Quincey before the Microsoft CEO Summit in Seattle in May.

Whitbread, which also owns the budget United Kingdom hotel chain Premier Inn, says that its board unanimously approved the deal and that it expects the sale to be completed by the first half of 2019.

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"The prize of Costa [for Coca-Cola] lies not in the mature United Kingdom market but in its global potential", said Jonny Forsyth, a Mintel analyst.

Whitbread said it would cut debt and contribute to its pension fund with proceeds from the deal and further expand its hotel chain Premier Inn in Britain and Germany.

In December 2017, USA -activist-investment firm Sachem Head Capital Management disclosed it had built a stake in Whitbread, and the following month Reuters reported that the fund was pushing Ms. Brittain to consider splitting Costa from Premier Inn.

Coca-Cola's big bet on coffee retail makes the beverage giant an immediate competitor to the likes of Starbucks, particularly in Costa's home market of the U.K. Costa operates almost 4,000 coffee shops throughout the world, and it a year ago unveiled a $47 million production roasting headquarters filled with massive Probat systems.

Because Coca-Cola expects the transaction to close in the first half of 2019, there is no change to 2018 guidance.

Analysts cited industry rivals, including Intercontinental Hotels Group, Marriott and Accor, as potential suitors, while some suggested that Premier Inn's £5.4 billion of assets could interest property investors such as Blackstone Group.

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

Whitbread Chief Executive Alison Brittain said the price tag represented "a substantial premium" to what would have been created through a demerger.

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

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