Coca-Cola takes plunge into coffee with US$5.1 bil Costa deal

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The purchase from Britain's Whitbread of Costa's nearly 4,000 outlets thrusts the world's biggest soda company into one of the few bright spots in the sluggish packaged food and drinks sector.

The acquisition adds a "scalable" coffee platform with critical know-how and expertise in a fast-growing, on-trend category, and expands Coca-Cola's existing coffee line up, which now includes Japanese coffee brand Georgia.

In recent years, the focus has been on evolving Costa into a leading multi-channel, worldwide coffee brand. Costa has more than 2,400 coffee shops in the United Kingdom and 1,400 others in more than 30 countries, including around 460 in China, its second-biggest market.

Another of JAB's coffee brands, Keurig, merged its business with one of Coca-Cola's domestic competitors - Dr Pepper Snapple - in January.

The company said the sale of the coffee chain will allow it to focus on its Premier Inn hotels business. JAB, the Luxembourg-based holding company that owns brands like Krispy Kreme and Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May. Costa's maroon shop front is now one of the most ubiquitous sights on British high streets, with 2,422 outlets in the United Kingdom and a further 1,399 in global markets, operated as franchises, joint ventures and wholesale outlets.

Without being specific about expansion plans, Quincey said in a video posted on Coca-Cola's website that the company would "over time" look to take Costa "to more people in more places".

Coca-Cola, which has over 500 brands in its stable including Fanta, innocent smoothies and Powerade sports drinks, certainly has the deep pockets to help push Costa on the world stage.

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Nicholas Hyett, an equity analyst at London-based stockbrokers Hargreaves Lansdown, said Costa will get "lots of care and attention" from Coca-Cola.

The deal represents a big return to Whitbread, which bought Costa in 1995 for 19 million pounds.

The deal, expected to complete in the first half of 2019, plugs a big hole in Coca-Cola's portfolio.

"Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn".

Asked if Whitbread had been pressured to accelerate the sale by activist investor Elliott and other hedge funds, Chief Executive Alison Britain said no.

Whitbread shares rose more than 17% in early Friday trading.

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