Media playback is unsupported on your device Media caption Whitbread boss Alison Brittain tells Today the deal would boost Costa's global expansion

Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth £3.9bn.

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

Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn business in the UK and Germany.

Whitbread bought Costa, which is now the UK's biggest coffee chain, for just £19m in 1995.

At the time, it had just 39 outlets. It now has more than 2,400 UK coffee shops, as well as some 1,400 outlets in 31 overseas markets. Costa Express has 8,237 vending machines worldwide.

Whitbread shares were up 16% in Friday afternoon trading.

Speaking on the BBC's Today programme, Ms Brittain explained that Coca-Cola wanted to buy Costa because "they want the coffee product, they have no coffee in their range".

She said the money from the sale would be used to expand the Premier Inn chain, return some cash to shareholders, pay down debt and boost the pension fund.

Describing the sale as a "win-win" for everyone, she said the price paid by Coca-Cola was far higher than if Costa had been demerged into a stand-alone company on the stock market.

She said she thought the beverage giant would use Costa to create "ready to drink, cold brew coffees".

"You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes - in all the places you see Coke today," she added.

Coca-Cola chief executive James Quincey told investors on a conference call that Costa was "a winning company that can go global".

He acknowledged that retail sales were a new area for Coca-Cola, but said Costa already had "a strong management team" and that Coca-Cola intended to "make it attractive for them to stay".

Whitbread announced earlier this year that it was planning to spin off Costa.

Whitbread had been under pressure to consider a break-up of the business after hedge fund Elliott Advisors became the company's largest shareholder.

Elliott reportedly put forward a demerger plan after building up a 6% stake in the firm.

As well as being the largest UK coffee chain, Costa is also the world's second largest. It is looking to triple its presence in China, where it is second to Starbucks.

According to consumer analysts Kantar Worldpanel, the out-of-home coffee market is worth £6.3bn a year in the UK alone.

Image copyright Heritage Images

From beer to beans to beds: Whitbread's long history

1742 - Samuel Whitbread forms partnership with Godfrey and Thomas Shewell

1750 - Whitbread creates UK's first mass-production brewery in London

1868 - Begins producing beer in bottles

1968 - Starts brewing Heineken under licence

1974 - Opens first Beefeater steakhouse

1990s - Buys David Lloyd Leisure, Marriott Hotels, TGI Fridays, Pizza Hut, Premier Lodge

1995 - Buys Costa Coffee from Sergio and Bruno Costa for £19m when it had 39 outlets

2000 - Sells brewing business to focus on Premier Inn and Costa

Whitbread also owns restaurants Beefeater and Brewers Fayre. Over the years, it has owned well-known brands such as TGI Fridays, Pizza Hut and Marriott Hotels.

The deal is subject to the agreement of Whitbread's shareholders and various other approvals, including from anti-trust regulators.

It is expected to complete in the first half of next year.

Analysis: Dominic O'Connell, Today business presenter

For years, demerger was a dirty word at Whitbread. When asked, as they often were, about the logic of having a hotel chain and a coffee chain in the same company, executives would extol the benefits of having two leisure brands under one roof.

Shareholders were always less convinced, but were happy to go along with the idea while Whitbread grew its revenue, profits and share price at a steady clip over the last decade.

All that changed with the arrival of Alison Brittain as chief executive - and the appearance on the shareholder register of Elliott Management, an aggressive, deep-pocketed US hedge fund with a track record of shaking up big companies. It pushed hard for a demerger, and Ms Brittain, who judged that Costa and Premier had reached sufficient scale to stand on their own feet, opened the door.

The plan was that Costa would be spun off at some time in the next two years, but Coca-Cola pre-empted that with a knockout offer.

While this is a landmark deal for Whitbread, it is also a significant move for Coca-Cola, taking it into hot beverages for the first time and, it hopes, providing the growth for which its investors have been crying out.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, described the deal as "a bitter-sweet moment for Whitbread investors".

"On the one hand, £3.9bn is an undeniably rich valuation and likely far better than Costa could achieve as an independently listed company, valuing its earnings higher than those of the mighty Starbucks," he said.

"On the other, Costa has long been the jewel in Whitbread's crown and some will be sad to see it go at any price, especially given the growth potential in China and elsewhere."</s>Coca-Cola has agreed to buy the world’s largest coffee chain Costa Coffee, which has more than 3500 coffee shops around the world. According to reports, the deal will be finalised in the first half of 2019. The company will buy the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash. The historic deal will allow Coca-Cola to expand its business in hot beverages as it already owns the Georgia and Gold Peak coffee brands.

Costa is the biggest coffee company in the United Kingdom with over 2,400 coffee shops. It is second most popular in the Chinese market with over 400 coffee shops around the most populous country in the world. Coca-Cola President and CEO James Quincey said the company wants to spend more in the hot beverages segment, adding that Coca-Cola can be a global brand in this category.

ALSO READ: Achhe din almost here? India posts GDP growth at 8.2 per cent for first quarter

Coca-Cola owns more than 500 brands, including Fanta and last year it generated operating income of $9.7 billion on revenues of $35.4 billion.

ALSO READ: 7th Pay Commission: Good news for Central government employees! DA hiked by 2%

Costa Coffee, which was acquired by British company Whitbread in 1995, was founded in London in 1971 by the brothers Sergio and Bruno Costa as a wholesale operation supplying roasted coffee to caterers and specialist Italian coffee shops.</s>Coca-Cola is getting a $5 billion shot of caffeine.

The company has agreed to buy coffee chain Costa Coffee from UK drinks and hotels group Whitbread for £3.9 billion ($5.1 billion).

Costa has nearly 4,000 stores across 32 countries. It will give Coca-Cola (KO) "a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion," Coca-Cola said in a statement.

Besides its thousands of retail stores, Costa Coffee also has smaller on-the-go outlets called Costa Express, a roastery and for-home coffee products.

Whitbread, which acquired Costa in 1995, said it will use proceeds from the sale of the coffee business to expand its other big brand, Premier Inn hotels.

The deal still needs to get approval from shareholders and regulators, and is expected to be completed in the first half of 2019, the companies said.

Buying Costa puts Coke in direct competition with Starbucks (SBUX) and several other global coffee brands.

Earlier this year, Nestle (NSRGF) and Starbucks agreed a $7.2 billion global coffee alliance, which will see Nestle market, sell and distribute Starbucks products outside its stores worldwide. JAB, the Luxembourg-based holding company that owns brands like Krispy Kreme and Peet's Coffee, bought UK sandwich and coffee chain Pret A Manger in May.

Another of JAB's coffee brands, Keurig, merged its business with one of Coca-Cola's domestic competitors — Dr Pepper Snapple — in January.

"Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand," Coca-Cola CEO James Quincy said Friday. "Costa gives us access to this market with a strong coffee platform."

Competition is heating up in other areas, too. Coca-Cola's chief rival Pepsi (PEP) announced earlier this month that it would buy Israeli DIY seltzer company SodaStream for $3.2 billion.</s>Whitbread is to sell Costa Coffee to Coca-Cola for £3.9 billion.</s>Whitbread has struck a deal to sell the Costa Coffee chain to Coca-Cola for £3.9 billion.

The coffee shop to hotels group said earlier this year that it would split Costa and list it as a separate entity, following pressure from activist investor Elliott.

But on Friday the company said a sale of the business is now “in the best interests of shareholders”.

Proceeds of the deal will be used to pay down debt and boost the pension fund.

Whitbread added that it intends to return a significant majority of net cash proceeds to shareholders.

The Press Association reported earlier this year that Whitbread has been approached informally over a potential buyout of Costa.

The company said the sale of the coffee chain will allow it to focus on its Premier Inn hotels business.

Chief executive Alison Brittain said: “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.

“This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.”

Whitbread acquired Costa in 1995 for £19 million from founders Sergio and Bruno Costa when it had only 39 shops.

It now has more than 2,400 outlets and is embarking on overseas expansion.

Coca-Cola boss James Quincey said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.

“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand.

“Costa gives us access to this market through a strong coffee platform.”

The deal comes hot the heels of another big money acquisition in the sector.

Pret A Manger was earlier this year sold by Bridgepoint for £1.5 billion to a company controlled by JAB, the investment vehicle of Germany’s wealthy Reimann family.</s>LONDON — Coca-Cola is hoping for a caffeine-fueled boost with the acquisition of British coffee chain Costa.

The soda giant said Friday it is spending 3.9 billion pounds, that’s $5.1 billion, in cash for Britain’s biggest coffee company. Costa has more than 2,400 coffee shops in the United Kingdom and 1,400 others in more than 30 countries, including around 460 in China, its second-biggest market.

It’s Coca-Cola’s latest move to diversify as health-conscious consumers, at least in America, move away from traditional soda. The company also recently said it’s buying a stake in sports drink maker BodyArmor. Coca-Cola’s other investments in recent years have included milk that is strained to have more protein and a push into sparkling water.

And just this week, the Atlanta-based company announced it had acquired the Moxie brand, a New England favorite made in Londonderry, New Hampshire.

Rival PepsiCo, meanwhile, recently bought carbonated drink maker SodaStream, which produces machines that allow people to make fizzy drinks in their own homes.

Coca-Cola already owns the Georgia and Gold Peak coffee brands, which make bottled and canned drinks. But the Costa acquisition gives it a much bigger piece of the coffee market, which is growing by 6 percent a year, according to James Quincey, Coca-Cola president & CEO.

“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” Quincey said.

The coffee market itself is hot at the moment. JAB Holdings, an investment holding company, has been buying up businesses and brands associated with Peet’s, Caribou, Stumptown and Krispy Kreme Doughnuts. And in May, Nestle paid more than $7 billion for the rights to sell Starbucks coffee and tea in supermarkets and other stores outside its coffee shops.

Costa, which doesn’t currently 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.

Without being specific about expansion plans, Quincey said in a video posted on Coca-Cola’s website that the company would “over time” look to take Costa “to more people in more places.”

In addition to its shops, Costa has self-serve coffee machines in grocery stores and gas stations. Quincey indicated that one potential early expansion route would be to use Costa’s vending operation and expand the company’s ready-to-drink products.

Nicholas Hyett, an equity analyst at London-based stockbrokers Hargreaves Lansdown, said Costa will get “lots of care and attention” from Coca-Cola.

“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 does already have over 500 brands in its stable including Fanta, innocent smoothies and Powerade sports drinks. In 2017, it generated operating income of $9.7 billion on revenues of $35.4 billion.

Whitbread had bought Costa for 19 million pounds in 1995, when it had just 39 shops. It has invested heavily in Costa’s expansion overseas recently, but had been looking to siphon off the business to generate funds for the expansion and for its other business, the budget hotel chain Premier Inn.

Then Coca-Cola got in touch with what Whitbread said was a “highly compelling” offer. The Whitbread board unanimously backed the deal, which is expected to close in the first half of 2019.

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. Some will be used to pay down debt and make a pension fund contribution.

Doing so, Whitbread said, would “provide headroom” to expand Premier Inn in Britain and Germany.</s>Geneva: Coca-Cola Co. agreed to buy the UK chain Costa Coffee for 3.9 billion pounds ($5.1 billion) to gain a global brand to expand in hot drinks.

Whitbread Plc agreed to sell Costa at a price that’s 16 times this year’s earnings before interest, taxes, depreciation and amortisation, the companies said in a statement on Friday.

“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 Chief Executive Officer James Quincey said in the statement. “Costa gives us access to this market through a strong coffee platform.”

Makers of soft drinks are branching out as consumers seek alternatives to sugary sodas. Earlier this month, PepsiCo Inc. agreed to pay $3.2 billion for SodaStream Ltd., which makes carbonated-water dispensers.

Costa was one of the few big coffee chains up for sale after Nestle SA and the Reimann family’s investment company JAB both went on an acquisition spree in the segment.

Whitbread said in April that it would divest Costa, after pressure from activist investors who said the business should be separate from its hotel operations.

The sale will yield a “substantial premium” to the value that would have been created through a spin-off, Whitbread said. The company will return most of the proceeds to its shareholders, it said.

Bankers from Rothschild advised Coke, while Whitbread used Goldman Sachs, Morgan Stanley and Deutsche Bank AG.</s>Costa Coffee, Britain’s biggest coffee shop chain, is being bought by Coca-Cola in a £3.9bn deal.

Costa owner Whitbread, which also owns the Premier Inn hotel chain, had been planning to demerge Costa but said the Coca-Cola deal offered a far higher price.

Shares in Whibread surged almost 20% on the news, adding more than £1bn to the group’s stock market value, as analysts said the price was substantially higher than expected.

Whitbread chief executive Alison Brittain said the sale will allow it to focus on its Premier Inn hotels business.

“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.

“This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.”

Whitbread acquired Costa in 1995 for £19m from founders Sergio and Bruno Costa when it had only 39 shops. It now has more than 2,400 outlets in the UK and is embarking on overseas expansion.

Brittain said Costa coffee could in future be seen “everywhere you see Coca-Cola today”.

Speaking on the BBC’s Today programme, she said: “They want the coffee product, they have no coffee in their range. You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes – in all the places you see Coke today.

“In the last few years we’ve been building the brand of Costa and making it international, and so for the first time really now, we’ve had an organisation like Coca-Cola who are really interested in the Costa business.

Coca-Cola boss James Quincey said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.

“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform.”

The deal comes hot the heels of another big move in the sector – Pret a Manger was sold earlier this year by Bridgepoint for £1.5bn to a company controlled by JAB, the investment vehicle of Germany’s wealthy Reimann family.

Whitbread said it intends to return a significant majority of net cash proceeds to shareholders and proceeds of the deal will be used to pay down debt and boost the pension fund.</s>announced on Friday it was acquiring Costa for $5.1 billion, giving it straight access to the dynamic and competitive coffee retail market, a new area for the world's largest beverage company. The acquisition, Coca-Cola's biggest in eight years, points to bold bets the company is willing to take as it seeks alternatives to fizzy drinks, say experts.

is the UK’s largest with a presence in over 30 countries across Europe, Africa, Middle East and Asia-Pacific, including China and India.

This is the second transaction involving a consumer products company and a after Nestlé struck a $7.15 billion global deal in May to sell Starbucks’ coffee products outside its cafes, in shops and supermarkets.

said it was open to additional expansion into new markets and would consider new product formats following the acquisition of Costa. “The acquisition will expand the existing coffee lineup by adding another leading brand and platform. Costa also gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” Coca-Cola President and CEO said while announcing the deal.

From an India perspective, Coca-Cola is likely to rejuvenate the brand, according to industry sources, as it looks to consolidate its presence in the Rs20 billion domestic coffee retail market, which is growing at 11-12 per cent per annum.

“The acquisition will help scale up Costa, as Coca-Cola is a large player here and has a good understanding of the Indian market and consumer. Coca-Cola, of course, will diversify into healthier drinks with the acquisition, something it is already doing. The company will also get access to distribution channels (via retail stores of Costa) through the transaction.

This way it can push its own portfolio of products,” said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss.

Global majors such as Starbucks and McCafe (from McDonald’s) have a headstart in the domestic market with over 124 and 150 stores, respectively, in the country, competing with homegrown players such as Café Coffee Day, which has over 1,700 stores.

Costa Coffee, which has been in India for nearly a decade and a half, has around 100 stores, run by Ravi Jaipuria’s Devyani International under a franchisee agreement with the previous owner of Costa (Whitbread).

Coca-Cola, industry sources say, could renegotiate new terms with Costa’s existing franchisee partners (including Jaipuria in India) or may even buy out the franchisee’s interest altogether in the venture, depending on how the original deal (between Whitbread and the franchisee) has been structured. Jaipuria was not immediately available for comment.

In 2014, Costa and Jaipuria were close to terminating their “exclusive” franchisee agreement after the latter declined committing more investment into the business.</s>Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth STG3.9 billion ($A7 billion).

The British coffee shop to hotels group said earlier this year that it would split Costa and list it as a separate entity, following pressure from activist investor Elliott.

But on Friday the company said a sale of the business is now "in the best interests of shareholders".

Proceeds of the deal will be used to pay down debt and boost the pension fund.

Chief executive Alison Brittain said: "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.

"This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas."

Whitbread acquired Costa in 1995 for STG19 million from founders Sergio and Bruno Costa when it had only 39 shops. It now has more than 2,400 outlets and is embarking on overseas expansion.

Coca-Cola boss James Quincey said: "Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.

"Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand.

"Costa gives us access to this market through a strong coffee platform."
The Coca-Cola Company agrees to buy British multinational coffeehouse Costa Coffee for £3.9 billion.