The board of British multinational Whitbread have unanimously agreed to a £3.9bn takeover of its Costa Coffee subsidiary by Coca-Cola, as it prioritises growth at its Premier Inn brand in the United Kingdom and Germany. The company's long-term targets also remain unchanged. Coca-Cola's other investments in recent years have included milk that is strained to have more protein and a push into sparkling water.
Earlier in August, for example, Pepsi paid R47 billion to buy SodaStream, which allows consumers to make their own carbonated beverages at home. And with the Costa deal, Quincey took a bolder step, paying up to give the soda giant a firm foothold in the coffee market.
Coke is under pressure to establish itself in new markets, with annual sales that have been in decline since 2012. JAB, the holding company that owns Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May. It is second most popular in the Chinese market with over 400 coffee shops around the most populous country in the world. That lack of a presence, however, is exactly why Coca-Cola says it wants to buy Costa. In addition to its shops, Costa has self-serve coffee machines in grocery stores and gas stations.
Costa is owned by Whitbread, the British multinational hospitality company.
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. In 2017, it generated operating income of $9.7 billion on revenues of $35.4 billion.
Whitbread acquired Costa in 1995 for £19m when it had 39 shops.
Shares of Whitbread jumped by 655p, or 16.3 per cent, to £46.75 after the surprise news that the 276-year-old company had torn up its plans to demerge Costa as a separately listed business and had agreed to sell the chain to Coca-Cola.
Costa's sale to Coca-Cola is likely to be seen as a direct challenge to the dominance of Starbucks in the US.
Coca-Cola's first overture came in June, Whitbread CEO Alison Brittain said on a call with journalists.
The company said net cash proceeds from the transaction are expected to be around £3.8 billion (Rs 35,100 crore), after deducting estimated transaction costs and separation costs.
She said the money from the sale would be used to expand the Premier Inn chain, return some cash to shareholders, pay down debt and boost the pension fund.
While Costa is "ubiquitous in the United Kingdom, the business has "plenty of opportunity to expand internationally, as Whitbread had been doing" says Patrick Mitchell-Fox, senior business analyst at IGD".
Coca-Cola shares were slightly down Friday in mid-morning trading.