- The US beverage giant Coca-Cola is buying the British coffee-shop chain Costa Coffee in a surprise acquisition.
- The British company Whitbread is selling Costa for £3.9 billion, or $US5.1 billion.
- Coca-Cola is using the deal to expand into the coffee market, where it has no presence.
- The move is likely to cause ripples for major coffee chains in the US like Starbucks.
- Shares in Whitbread jumped almost 20% at the open on the news.
Coca-Cola has announced a surprise move to buy Costa Coffee, one of Europe’s largest café chains, from the British company Whitbread for £3.9 billion, or $US5.1 billion, in a move likely to send shockwaves through the coffee industry.
Whitbread, which also owns the budget UK hotel chain Premier Inn, says that its board unanimously approved the deal and that it expects the sale to be completed by the first half of 2019.
“This transaction is 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,” Whitbread’s CEO, Alison Brittain, said in a statement released to the stock market on Friday morning.
The £3.9 billion figure represents a multiple of more than 16 times Costa’s expected 2018 earnings.
Whitbread had 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 has no presence in coffee. That lack of a presence, however, is exactly why Coca-Cola says it wants to buy Costa.
Costa has more than 3,800 stores, with 2,467 in the UK and 1,415 outside it. It has zero footprint in the US.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” Coca-Cola CEO James Quincey said in a statement. “Costa gives us access to this market through a strong coffee platform.”
Coca-Cola’s move into coffee is part of a growing trend from soft-drink manufacturers, which are trying to find ways to grow even as consumers move away from sugary, fizzy drinks – which in many markets are now heavily taxed.
Earlier in August, for example, Pepsi paid $US3.2 billion to buy SodaStream, which allows consumers to make their own carbonated beverages at home.
Coffee wars: The threat to Starbucks
Costa’s sale to Coca-Cola is likely to be seen as a direct challenge to the dominance of Starbucks in the US. Costa has more UK stores than Starbucks and has been expanding globally.In October it bought out Yueda, a Chinese coffee chain with which it had operated a joint venture in China for over a decade.
Costa is the second-largest coffee-shop chain in China, though its presence there is dwarfed by Starbucks’ 2,800 stores.
Coca-Cola’s deal with Costa threatens not only Starbucks’ store-based operations but also its retail arm, which sells branded iced coffees and coffee drinks in convenience and grocery stores around the world.
In the UK, Costa operates thousands of self-service coffee machines in stores and gas stations, a model that could be expanded to the US.
Shares in Whitbread surged at the open Friday as a result of the deal, climbing almost 20%, as the chart below shows:
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