Coca-Cola expands into coffee with $5.1 billion deal for Britain’s Costa

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The Costa deal opens a new business line for a company synonymous with fizzy, sugary beverages such as Coca-Cola, Sprite and Fanta, underscoring the pressure to find new areas of growth as consumer tastes change.

The Costa deal still needs to get approval from shareholders and regulators, and is expected to be completed in the first half of 2019. The company also operates a business of 8 000 self-service machines.

James Quincey, Coca-Cola President & CEO, said Friday that Costa will give the company "new capabilities and expertise in coffee". It will give Coca-Cola "a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion", Coca-Cola said in a statement.

While the bulk of the proceeds will be returned to shareholders, it will use some of the cash to pay down debt and address its 350 million-pound pension deficit, to give it the flexibility to continue expanding its Premier Inn hotels in the United Kingdom and Germany, which will become its main business.

Whitbread acquired Costa in 1995 for £19 million from founders Sergio and Bruno Costa when it had only 39 shops. But it seems Coca-Cola swung in with an offer that was much more lucrative for Whitbread: the deal is worth £3.9 billion.

Costa has almost 4,000 stores across 32 countries, and the beverage company is planning on expanding the number of Costa stores in Europe, the Middle East, Asia and Africa.

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

Whitbread had meant to spin off the chain as a separate firm, but said a straight sale was more profitable.

Whitbread shares closed up 14.3 percent on Friday in London as analysts praised the price tag that Costa had fetched, which values the chain at 16.4 times its latest annual earnings.

She said she thought the beverage giant would use Costa to create "ready to drink, cold brew coffees".

Brittain suggests that the deal could see Costa made as easily available as a can or bottle of Coke, saying: "They [Coca-Cola] want the coffee product, they have no coffee in their range". Premier Inn has 785 hotels in the United Kingdom and a sprinkling of others in Germany and the Middle East.

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