Coca-Cola buys coffee chain for $5 billion

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The £3.9-billion (US$5.1-billion) sale of the Costa Inc. coffee chain to the Coca-Cola Company began brewing when Whitbread Group PLC's boss Alison Brittain crossed paths with the chief executive of the soft-drinks giant at a conference.

Commenting on the deal, Howard Telford, head of soft drinks at industry research group Euromonitor, said Coke has acquired a "true global coffee brand" that offers much potential, from introducing Costa-branded RTD beverages into Coke's distribution system to utilizing the company's bean-to-cup vending expertise.

For Coca-Cola, the deal adds to its efforts to move away from fizzy drinks towards more healthier options for increasingly health-conscious consumers.

The coffee brand will help Coca-Cola achieve its goal of being a total beverage company that sells everything from water to sports drinks, he said.

Coca-Cola is to buy the Costa coffee chain from owner Whitbread in a deal worth £3.9bn. He cited potential opportunities to expand Costa's espresso machine system, Costa Express, which now has over 8,000 units in-market.

Costa was one of the few big coffee chains up for sale after Nestle SA and the Reimann family's investment company JAB both went on an acquisition spree in the segment.

Costa is the second-largest coffee-shop chain in China, though its presence there is dwarfed by Starbucks' 2,800 stores.

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Coke is keen to leverage Costa's global reach as it becomes a retail brand owner for the first time, the person said. In addition to its shops, Costa has self-serve coffee machines in grocery stores and gas stations.

The coffee market itself is hot at the moment.

Outside of the retail cafes, Costa's true value may lie in its inherent synergies with Coke's existing businesses.

Whitbread previously said in April it would split Costa off as a separate firm from Premier Inn. And in May, Nestle paid more than $7 billion for the rights to sell Starbucks coffee and tea in supermarkets and other stores outside its coffee shops. 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.

As well as returning proceeds to shareholders, the company said it intends to reduce debt and make a contribution to its pension fund - though did not provide precise details - in moves which it believes will allow it to continue its expansion of Premier Inn.

Coke has dabbled in coffee before, with an unsuccessful attempt at selling java-flavoured Coca-Cola Blak. When asked, as they often were, about the logic of having a hotel chain and a coffee chain in the same company, executives would extol the benefits of having two leisure brands under one roof.

Bankers from Rothschild advised Coke, while Whitbread used Goldman Sachs, Morgan Stanley and Deutsche Bank.

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