Coca-Cola digs into coffee with $5.1bn Costa purchase

Coca-Cola has agreed to buy the UK chain Costa Coffee for $5.1bn, stepping into a battle with Starbucks as it gains a global brand in hot drinks.

Whitbread agreed to sell Costa, which operates more than 3 800 locations in 32 countries, the companies said in a statement on Friday. The price is 16 times this year’s earnings before interest, taxes, depreciation and amortisation.

"Hot beverages are 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 agreed to pay $3.2bn for SodaStream, which makes carbonated-water dispensers.

This is Coca-Cola’s biggest push into operating stores, just as a series of UK retailers such as BHS go out of business.

Shares soar

Whitbread shares rose as much as 19% as the sale gives the UK company a quick way out. 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.

Coca-Cola’s first overture came in June, Whitbread CEO Alison Brittain said on a call with journalists.

"It’s been a very fast transaction," she said. The spin-off would have taken up to two years, the company had said.

Costa outranks Starbucks in the UK and is expanding in markets such as China. The company also operates a business of 8 000 self-service machines.

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.

Coke sells coffee under the Georgia brand in Japan, and has some other local products for specific markets.

Whitbread bought Costa in 1995 for £19m. At the time, it had 39 shops.

The sale will yield a "substantial premium" to the value that would have been created through a spinoff, 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.