Coca-Cola announces acquisition of Costa coffee for $5.1bn
No more caffeine cravings for Coca-Cola. On Friday, the beverages giant announced that it would be purchasing the Costa coffee chain from British firm Whitbread for $5.1bn. Notably, Costa is Britain's largest coffee chain, and has a considerable global presence. The deal is expected to be completed in the first half of 2019. Here are the details.
Costa coffee's growth story since 1995
In 1995, Costa coffee, with its 39 shops, was acquired by Whitbread for a mere £19mn. Since then, Costa coffee has grown in leaps and bounds, and currently has over 2,400 coffee shops in the UK, and over 1,400 shops in 30 other countries. In terms of finances, Costa coffee made an operating profit of £123mn for the year ended March.
Whitbread had been looking to sell Costa coffee
Of late, Whitbread has also invested heavily in Costa's overseas expansion. However, despite having been instrumental to Costa coffee's impressive growth, the British firm had been looking to offload the company to generate funds for expanding its budget hotel chain, Premier Inn. When Coca-Cola expressed its interest and flaunted the cash, the Whitbread board unanimously accepted the "highly compelling" offer.
Coca-Cola also stands to gain a lot from the deal
Meanwhile, Coca-Cola potentially stands to gain a lot from the deal. Despite its 500+ brands including coffee brands like Georgia and Golden Peak, the beverages giant lacked a killer brand with a global presence in the coffee business. The acquisition of Costa with its global presence, coupled with Coca-Cola's deep pockets, can help the company become a strong player in the coffee shop business.
Coca-Cola CEO talks about the acquisition
"Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand," said James Quincey, President & CEO of Coca-Cola, which registered a whopping operating profit of $9.7bn in 2017.
What Whitbread stands to gain from Costa's sale
Meanwhile, Whitbread has said that it will use a significant part of the $5.1bn to repay shareholders, pay down debt, and make contributions to the pension funds. The company also added that this would "provide headroom" to expand the Premier Inn chain further in Britain and Germany. Shareholders seem to be convinced with Whitbread's plan - the company's shares soared 16% following the announcement.
Whitbread CEO talks about Costa's sale
"This transaction is great news for shareholders as it recognizes the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realization of value for shareholders in cash," said Whitbread CEO Alison Brittain.
