Coca-Cola to buy UK’s Costa Coffee chain for $5.1 billion

Costa Coffee

The deal was codenamed "Project Del Sol" - a pun on Spain's Costa del Sol holiday coast - by Coca-Cola and "Project Crimson" - an allusion to Costa's red branding - by the Whitbread team, according to a person familiar with the matter.

Costa is owned by Whitbread, the British multinational hospitality company.

Costa has over 2,400 coffee shops in the United Kingdom and another 1,400 in more than 30 global markets.

The deal is expected to complete in the first half of 2019. The company also recently said it's buying a stake in sports drink maker BodyArmor.

Costa is Britain's biggest coffee company, with over 2,400 coffee shops in the United Kingdom and another 1,400 in more than 30 countries, including around 460 in China, its second-biggest market.

Costa, which doesn't now have a presence in North or South America, was the third-largest coffee shop chain globally in 2017, according to market research provider Euromonitor International, just behind McDonald's McCafe outlets but well behind Starbucks.

Organic revenue, or sales from its core beverage business, rose 5 percent in the quarter, with Diet Coke, Coke Zero and sparkling water contributing the most. Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets.

Coca-Cola are known for their soft drinks but they now have no coffee products in their portfolio, so Costa is an appealing prospect to expand their range.

The deal brings to an end Whitbread's history as a conglomerate in the leisure sector.

"The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders", Chief Executive Alison Brittain said.

Doing so, Whitbread said, would "provide headroom" to further expand the Premier Inn budget hotel chain in Britain and Germany.

Whitbread's share price was up nearly 16 per cent to £46.56 following the announcement, while London's benchmark FTSE 100 index on which it trades was down 0.3 per cent.

"It's been a very fast transaction", she said.

For Costa, Hyett said Costa will get "lots of care and attention" from Coca- Cola.

Whitbread, which was established in 1742 as a brewer, had been in the process of demerging Costa from another subsidiary it owns, the Premier Inn hotel chain, but said the Coca-Cola agreement offered a substantially higher price. Premier Inn has 785 hotels in the United Kingdom and a sprinkling of others in Germany and the Middle East.

Founded 276 years ago as a brewery by Samuel Whitbread and Godfrey and Thomas Shewell, Whitbread grew into a sprawling group that had interests spanning pubs, fitness clubs, casual dining chains and Costa, which it bought for 19 million pounds in 1995.

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