Coca-Cola to pay US$5.1 billion for Costa Coffee

Coca-Cola has agreed to buy UK cafe chain Costa Coffee from listed hotel operator Whitbread for £3.9 billion pounds (US$5.1 billion).

The investment – Coke’s largest yet in acquiring another business – will help it expand into the hot beverages category with a brand recognised globally at a time when sales of its core soda and energy drink beverages business are under pressure due to growing awareness of health issues.

The price Coke will pay for Costa Coffee represents a 16 times multiple of its earnings this year before interest, taxes and depreciation.

The chain has more than 4000 stores across 32 countries, including 459 in China, where sales increased 4.9 per cent in the first half of this year. Other Asian markets the company has opened in include Cambodia, India, the Philippines, Indonesia, Singapore and Pakistan. Last October the company opened its first outlet in Vietnam at Danang International Airport.

It also has some 8000 Costa Express self-service vending machines, another factor which would have been attractive to Coca Cola.

“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” said Coca-Cola CEO James Quincey in a statement.

“Costa gives us access to this market through a strong coffee platform.”

Whitbread has been under pressure from activist shareholders to sell the cafe business, describing its as an unsuitable fit with core hotel operations. It began courting buyers in April.

Whitbread, which bought Costa Coffee in 1995, said it will return most of the proceeds of the sale to its shareholders.

 

Extracted from Inside Retail Asia

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