Coke into coffee: Coca-Cola buys United Kingdom coffee chain Costa for $7 billion

Coke into coffee: Coca-Cola buys United Kingdom coffee chain Costa for $7 billion

Coke into coffee: Coca-Cola buys United Kingdom coffee chain Costa for $7 billion

The Coca-Cola Company is buying United Kingdom -based Costa Limited, a global coffee chain with nearly 4,000 retail outlets, for $5.1 billion, it announced today. It has since grown from 39 outlets to more than 2,400 coffee shops in the United Kingdom and 1,400 in 31 overseas markets.

Whitbread acquired Costa in 1995 for £19m when it had 39 shops.

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

James Quincey, Coca-Cola President & CEO, said Friday that Costa will give the company "new capabilities and expertise in coffee".

Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn business in the United Kingdom and Germany. The company will return most of the proceeds to its shareholders, it said.

Doing so, Whitbread said, would "provide headroom" to further expand the Premier Inn budget hotel chain in Britain and Germany.

Since announcing the sale, Whitbread's shares have jumped up 17 per cent this morning.

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But Coca-Cola will face a fight, as rivals are also bulking up in a fragmented market, keen to attract young people prepared to pay out for barista-made drinks and developing tastes for ever more exotic coffees.

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

Costa doesn't now have a presence in North or South America, but Quincey indicated that one potential early expansion route would be to use Costa's vending operation and grow the company's ready-to-drink products.

The company said net cash proceeds from the transaction are expected to be around £3.8 billion (Rs 35,100 crore), after deducting estimated transaction costs and separation costs.

"An excellent deal it may be, but Whitbread investors may miss the caffeine highs Costa serves up", said Nicholas Hyett, equity analyst at London-based stockbrokers Hargreaves Lansdown.

"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.

The Press Association reported in May that Whitbread had been approached informally over a potential buyout of Costa.

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