Coca-Cola announces surprise $5.1 billion takeover of one of Britain's biggest coffee chains

  • US beverage giant Coca-Cola will buy British coffee shop chain Costa in a surprise acquisition.

  • Costa, which is currently owned by Whitbread, is being sold for £3.9 billion ($5.1 billion).

  • Coca-Cola currently has no presence in the coffee market, and wants to use the deal to expand into the space.

  • Shares in Whitbread jump almost 20% at the open on the news.

Coca-Cola has announced a surprise move to buy Costa Coffee, one of the UK's largest cafe chains, from current owners Whitbread for £3.9 billion ($5.1 billion).

Whitbread, which also owns budget hotel chain Premier Inn, said that its board had unanimously approved the deal, and that it expects the sale to be completed by the first half of 2019.

"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," Whitbread's chief executive Alison Brittain said in a statement released to the stock market on Friday morning.

The £3.9 billion figure put on the deal represents a multiple of more than 16 times Costa's expected full year earnings in 2018.

Shares in Whitbread surged at the open on Friday as a result of the deal, climbing almost 20%, as the chart below shows:

Whitbread share chart costa merger
Whitbread share chart costa merger

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Whitbread had not hidden its plans to spin out the Costa brand, but the sale to Coca-Cola has come as something of a surprise to many in the market, given that Coca-Cola currently has no presence in the coffee market.

One of the main drivers of the deal, Brittain said, is that "they [Coca-Cola] want the coffee product, they have no coffee in their range." Brittain went on to say that Coca-Cola plans to sell Costa branded "ready to drink, cold brew coffees" in places like vending machines and convenience stores.

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

"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. I'd like to welcome the team to Coca-Cola and look forward to working with them."