Coca-Cola buys Costa Coffee from UK's Whitbread in $5.1bn deal

The acquisition of the world's second-biggest coffee retailer is set to bolster Coca-Cola's presence in the hot beverages segment

The purchase of the biggest coffee chain behind Starbucks adds to Coca-Cola's drive to diversify away from fizzy drinks. AFP

Coca-Cola has agreed to buy the world's second-largest coffee chain Costa from Britain's Whitbread for $5.1 billion including debt, opening a new front in its push into healthier markets.

The two companies said on Friday that Coke, one of the biggest soft drinks groups in the world, would buy Costa's almost 4,000 outlets across markets including Britain, continental Europe and China after Whitbread's board unanimously backed the deal.

Whitbread shares jumped 19 per cent in early trading on Friday, with dealers saying the purchase price was more than £700 million (Dh3.33bn) higher than expected.

The purchase of the biggest coffee chain behind Starbucks adds to Coca-Cola's drive to diversify from fizzy drinks and expand its options for increasingly health-conscious consumers after countries started introducing sugar taxes.

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

Established in 1742 as a brewer, Whitbread had been in the process of de-merging Costa from its Premier Inn hotel chain after it came under pressure from hedge funds. The deal marks the latest transformation of a group that has held assets across the leisure, food and drink sectors.

Whitbread acquired Costa in 1995 for £19m when it had only 39 outlets. It is now present on most British high streets, with 2,422 outlets across the country and a further 1,399 in international markets, operated as franchises, joint ventures and wholesale outlets.

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It has recently expanded into China after growth in Britain became harder to find in a market saturated with chains including Starbucks and Caffe Nero, and thousands of independent outlets.

Whitbread said it would cut debt and contribute to its pension fund with proceeds from the deal, and expand its Premier Inn hotel chain in Britain and Germany.

"The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders", chief executive Alison Britain said.

Rothschild advised Coca-Cola over the deal.