Coca Cola has agreed to pay £3.9bn to purchase Costa Coffee from Whitbread, which had intended to spin off the chain as a separate firm, but said a straight sale was more profitable.
Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn hotel business in the UK and Germany.
Whitbread bought Costa, which is now the UK's biggest coffee chain, for just £19m in 1995.
At the time, it had just 39 outlets. It now has more than 2,400 UK coffee shops, as well as some 1,400 outlets in 31 overseas markets. Costa Express has 8,237 vending machines worldwide.
Brittain explained that Coca-Cola wanted to buy Costa because "they want the coffee product, they have no coffee in their range".
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.
But Coca-Cola’s £3.9bn deal to buy the Costa Coffee chain has highlighted the lengths to which food and drinks companies are going to keep pace with rapidly changing consumer habits.
Although the purchase price is small in the context of Coke’s $191bn market capitalisation, some bankers described the acquisition as among the most important strategic moves the US beverage maker has made in its 132-year history.
RPA Perspective The Atlanta-based Coca Cola’s decision to take on Starbucks, Nestlé and JAB Holdings in the fast-growing yet highly competitive coffee market capped a busy dealmaking fortnight in consumer industries. A series of proposed transactions has shown how established western brands are taking divergent approaches in response to demand for fresher and healthier products and the transformative rise of digital marketing.
Many consumer companies are expanding into territories or products with brighter growth prospects. Ten days before Coke reached its agreement on Friday last week to buy Costa, its arch-rival PepsiCo struck a $3.2bn deal to buy Nasdaq-listed SodaStream, which makes sparkling-water dispensers.
In Coke’s case, the acquisition of UK-focused Costa prompted questions on Wall Street about how the consumer goods company will manage a shift into bricks and mortar retail, where it lacks experience. Costa will increase the group’s headcount by about a third, adding another 20,000 or so employees on top of its existing total of about 62,000, and require it to maintain an expanding network of 3,800 stores.
James Quincey, Coke’s president and chief executive, said the acquisition of the coffee company from London-listed Whitbread had a “very compelling strategic rationale…There’s opportunity for great value creation, through the combination of Costa’s capabilities and Coca-Cola’s marketing expertise and global reach,” he said.
Hot beverages, he said, is one of "the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand."
The deal is expected to complete in the first half of 2019 and its purchase of Costa is part of the fizzy drink maker’s effort to reposition itself as a “total beverage company”.
