Here's Why Coca-Cola Is Buying Costa Coffee for $5.1 Billion

Here's Why Coca-Cola Is Buying Costa Coffee for $5.1 Billion

Whitbread said in April that it would spin off Costa as an independent publicly traded company, turning its focus to its Premier Inn hotel operations under pressure from activist investors.

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

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.

"This transaction is great news for shareholders as it recognizes the strategic value we have developed in the Costa brand and its global growth potential and accelerates the realization of value for shareholders in cash", said Alison Brittain, Whitbread's chief executive.

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

The two companies said on Friday that Coke, one of the biggest soft drinks groups in the world, would buy Costa's nearly 4,000 outlets across markets such as Britain, Europe and China after Whitbread's board unanimously backed the deal. Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets.

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Coca-Cola hopes to close the deal in the first half of next year, subject to shareholder and regulatory approvals. "Costa gives us access to this market with a strong coffee platform" he added.

Coca-Cola is acquiring the Costa coffee chain from owner Whitbread as it looks to move into the coffee market and shore up its business as sales of fizzy drinks high in sugar continue to fall.

"Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand". The spinoff would have taken as long as two years, the company had said.

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

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

"(This is) certainly a big coup for Whitbread that they managed to sell Costa at a valuation much above what anyone would have expected", Bernstein analyst Richard Clarke said.

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