Coca-Cola Buys Costa Coffee in a £3.9 Billion Deal

Costa Coffee

Whenever Alison Brittain, the chief executive of Whitbread, was asked in the past whether she'd consider spinning off Costa, she'd say it was more complicated than people realised.

The two companies said on Friday that Coke, one of the biggest soft drinks groups in the world, would buy Costa's nearly 4,000 outlets across markets such as Britain, Europe and China after Whitbread's board unanimously backed the deal. At the time, it had 39 shops.

Whitbread said it will now focus on value hotel chain Premier Inn.

But Coca-Cola will face a fight, as rivals are also bulking up in a fragmented market, keen to attract young people prepared to pay out for barista-made drinks and developing tastes for ever more exotic coffees.

Speaking on the BBC's Today programme, Ms Brittain explained that Coca-Cola wanted to buy Costa because "they want the coffee product, they have no coffee in their range".

Whitbread had not hidden its plans to spin out the Costa brand, but the sale to Coca-Cola has come as something of a surprise to many in the market, given that Coca-Cola now has no presence in the coffee market.

However, shareholders had been pushing for Whitbread to sell or spin off Costa so it could concentrate on its hotel and restaurant business.

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Costa is owned by Whitbread, the British multinational hospitality company. It is looking to triple its presence in China, where it is second to Starbucks.

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.

For years, demerger was a dirty word at Whitbread.

The company said that "a significant majority" of the...

"It recognises the strategic value we have developed in the Costa brand and its global growth potential and accelerates the realisation of value for shareholders in cash".

"This is a bitter sweet moment for Whitbread investors", noted Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"On the one hand £3.9bn is an undeniably rich valuation and likely far better than Costa could achieve as an independently listed company, valuing its earnings higher than those of the mighty Starbucks (Hanover: SRB.HA - news)".

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