Wednesday, 17 October, 2018

Coca-Cola makes a $5.1-billion bet on the coffee market

Daniel Berehulak  Getty Daniel Berehulak Getty
Lloyd Bates | 31 August, 2018, 22:26

The company will buy the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash.

United States beverage giant Coca-Cola will buy British coffee shop chain Costa in a surprise acquisition.

When Whitbread bought Costa for just £19m in 1995 it had just 39 coffee shops.

It's Coca-Cola's latest move to diversify as health-conscious consumers, at least in America, move away from traditional soda.

Coke plans on using Costa's Coffee Club membership, a loyalty program, to market digitally to individual consumers, Quincey said.

In December 2017, USA activist investor Sachem Head disclosed it had built a stake in Whitbread and the following month Reuters reported that the fund was pushing Brittain to consider splitting Costa from Premier Inn.

The company will return most of the proceeds to its shareholders, it said. The company's long-term targets also remain unchanged. It also operates almost 8,300 Costa vending machines worldwide.

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Coca Cola is to buy coffee chain Costa for £3.9 billion.

Beyond coffee shops, Coca-Cola CEO James Quincey, himself a Briton who is familiar with the Costa brand, said Costa would provide an important growth platform ranging from beans to bottled drinks in what is one of the world's fastest-growing drink categories, growing 6 percent. JAB, the Luxembourg-based holding company that owns brands like Krispy Kreme and Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May.

Brittain suggests that the deal could see Costa made as easily available as a can or bottle of Coke, saying: "They [Coca-Cola] want the coffee product, they have no coffee in their range".

Whitbread had meant to spin off the chain as a separate firm, but said a straight sale was more profitable.

Shareholders in Whitbread were impressed by the deal and the company's share price soared 16 per cent in morning trading in London.

The Costa deal still needs to get approval from shareholders and regulators, and is expected to be completed in the first half of 2019. Some will be used to pay down debt and to make a contribution to the pension fund.

"Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn't have a killer brand", he said. Coca-Cola shares were little changed.

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