Economy

Coca-Cola digs into coffee with $5.1bn Costa purchase

Coca-Cola digs into coffee with $5.1bn Costa purchase”

Whitbread has torn up its plans to demerge Costa Coffee as a separately listed business after agreeing to sell the chain to the Coca-Cola Company for £3.9 billion. Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets.

Paying about 1 billion pounds more than some analysts had expected, Coke will use its distribution network to supercharge Costa's expansion as it chases current coffee chain market leader Starbucks (SBUX.O) and its nearly 29,000 stores across 77 markets.

Whitbread bought Costa, which is now the UK's biggest coffee chain, for just £19m in 1995.

It is expected to complete in the first half of next year.

This story will be updated.

Whitbread will now focus on its Premier Inn hotel chain. 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.

But in a statement this morning, the company said a sale of the coffee chain is now "in the best interests of shareholders". As of April, Whitbread was planning to slowly spin off Costa.

A significant majority of net cash proceeds meant to be returned to shareholders, Whitbread added.

"Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand", Coca-Cola CEO James Quincey said.

Whitbread will use a "significant majority" of the net cash proceeds - around 3.8 billion pounds after taking into account such things as transaction costs - returning cash to shareholders.

The company had earlier this year launched new flavors of its popular Diet Coke brand in slimmer packaging, responding to consumer demand for low and no-sugar sodas.

Neil Wilson, chief market analyst at markets.com, said: "The price looks like investors will get more bang for their buck than they would have done with a simple demerger".

"Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn".



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