Coca-Cola is to buy Costa coffee from leisure group Whitbread in a deal that values the UK high-street chain at £3.9bn including debt.
Whitbread had previously announced it would spin off Costa from the rest of its business, which is focused on the faster-growing Premier Inn hotel brand, after coming under pressure from activist investors.
The sale marks the end of Whitbread’s 23-year ownership of Costa, which the group bought for £19m when it had just 39 shops. It now has more than 2,400 shops in the UK and 1,400 in more than 30 international markets, as well as operating a self-serve business.
Chief executive Alison Brittain said the deal represented a “substantial premium” to what would have been achieved by demerging Costa. A “significant majority” of the net cash proceeds of around £3.8bn from the deal will be returned to shareholders, Whitbread said. The company will also use the money to pay down debt, contribute to its pension fund and finance the expansion of Premier Inn.
James Quincey, Coca-Cola president and chief executive said that Costa would give the company, “new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide”.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform.”
Coffee has been one of the frothiest markets for mergers and acquisitions activity over the past year, as competition between Swiss group Nestlé and JAB Holdings — the private investment group that manages the wealth of Germany’s billionaire Reimann family — has heated up.
Nestlé has struck deals including taking a majority stake in hipster roastery Blue Bottle and acquiring rights to sell Starbucks products, while JAB earlier this year struck a deal to combine Keurig Green Mountain coffee business with soft drinks producer Dr Pepper Snapple.
Ms Brittain said the deal was “great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash”.