Coca-Cola Digs Into Coffee With $5.1 Billion Costa Purchase
Published Aug 31, 2018 02:36AM ET
Updated Aug 31, 2018 03:00AM ET
Coca-Cola Digs Into Coffee With $5.1 Billion Costa Purchase
(Bloomberg) -- Coca-Cola (NYSE:KO) Co. agreed to buy the U.K. chain Costa Coffee for 3.9 billion pounds ($5.1 billion), stepping into a battle with Nestle SA (SIX:NESN) and Starbucks Corp (NASDAQ:SBUX). as it gains a global brand in hot drinks.
Whitbread (LON:WTB) Plc agreed to sell Costa at a price that’s 16 times this year’s earnings before interest, taxes, depreciation and amortization, the companies said in a statement 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 (NASDAQ:PEP) Inc. agreed to pay $3.2 billion for SodaStream Ltd., which makes carbonated-water dispensers.
Costa outranks Starbucks in the U.K. and is expanding in markets such as China. The company was one of the few big coffee chains up for sale after Nestle 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 19 million pounds. At the time, it had 39 shops; now it has more than 3,800 locations in 32 countries. The company also operates a business of 8,000 self-service machines.
Whitbread said in April that it would spin off Costa as an independent publicly traded company, 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 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 (NYSE:GS), Morgan Stanley (NYSE:MS) and Deutsche Bank AG (DE:DBKGn).
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Written By: Bloomberg
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