CocaCola digs into coffee with $5.1 billion Costa purchase
Co. agreed to buy UK coffee-shop leader Costa for £3.9 billion ($5.1 billion) in its biggest acquisition in eight years, pushing the soda pioneer into the fiercely competitive java market.
Whitbread Plc agreed to sell Costa Coffee Ltd, which operates more than 3,800 stores in 32 countries, rather than go ahead with a plan announced in April to spin it off as an independent company. Whitbread shares soared the most in 19 years as analysts said the business fetched a surprisingly high price.
Coke’s annual sales have been in decline since 2012. The Atlanta-based company is entering the coffee-shop market to make up for waning soft-drink demand, even as competitors such as Starbucks Corp. and JAB have already cornered many key locations.
Coming after PepsiCo Inc.’s $3.2 billion agreement this month to buy SodaStream Ltd, a maker of carbonated-water dispensers, “it would appear that Coca-Cola
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is branching out slightly dif- ferently into the extremely competitive coffee market, where it is hoped that CocaCola’s brand, as well as its marketing might, will help maintain the Costa brand’s market share,” said Michael Hewson, an analyst at CMC Markets, in a note.
Makers of soft drinks are diversifying as consumers seek alternatives to sugary sodas. The Costa purchase is also Coca-Cola’s biggest push into operating stores, just as weak consumption in the UK forces a series of retailers such as BHS out of business. “Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” chief executive officer James Quincey said in the statement.
Whitbread shares rose as much as 19%. Whitbread said in April that it would spin off Costa as an independent publicly traded company, turning its focus to its Premier Inn hotel operations under pressure from activist investors.
Coca-Cola’s first overture came in June and the deal was signed just minutes before it was announced, Whitbread CEO Alison Brittain said on calls with journalists and analysts.