Cola-Costa takeover to cost £3.9bn

It was announced earlier today that Coca-Cola are set to purchase Costa, one of the UK’s most successful coffee brands, in a deal that is worth around £3.9bn.

The Whitbread Group, who own Costa, today announced that it has entered into an agreement for the sale of Costa Limited. The sale represents an enterprise value of £3.8bn at completion, after adjusting for estimated transaction costs and separation costs, demonstrating a multiple of 16.4x Costa within 2018.

In a market shake-up Coca-Cola are set to purchase Costa, one of the UK’s most successful coffee brands, in a deal that is worth around £3.9bn.

The transition period is expected to be 12-24 months, with Dominic Paul remaining Costa Managing Director and no other changes to the Whitbread executive team.

It has also been reported that transaction and separation costs of approximately £100m, with the appropriate routes to return proceeds considered at completion. However, some pension trustees and some debt providers will require consultation.

In the proposed sale of Costa document there have been several noticeable features including a nod to the brand recognition that Costa holds, giving them strength, multi-channel presence and international growth potential.

The transaction was unanimously agreed by Whitbread Board to be in the best interests of shareholders net cash proceeds intended to be returned to shareholders.

The sale appears to come at a time of financial instability for Costa, with them stating that a significant majority of net cash proceeds intend to be returned to shareholders.

Whitbread also explained the deal will reduce financial indebtedness and make a contribution to the pension fund, which will both provide headroom for further expansion of Premier Inn in the UK and Germany.

This comes as no surprise as, currently, Whitbread have 75,000 rooms in almost 800 hotels in the UK, Germany and the Middle East, operating under the Premier Inn brand.

Coupled with its 49 percent investment in Pure, a London-based healthy eating quick service restaurant business with 15 stores, they are focusing their business efforts in what they believe are more viable options.

Alison Brittain, Whitbread chief executive, spoke about the deal with optimism that the Coca-Cola brand would be able to take them into a new era. She stated that:

“The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders.”

Alison went on to speak about how this deal would help the business financially and which will provide additional headroom for the expansion of Premier Inn.

The chief executive spoke about the 267 year history of Whitbread, which saw them acquire Costa for £19m in 1995 and saw it expand to the coffee giant it is today. This development of the brand means that Alison would appear to have no regrets about the sale.

Alison Brittain, Whitbread chief executive

Coca-Cola’s global scale, product and distribution capabilities have been seen as an advantage and a way to continually improve the Costa brand, with Alison stating: “This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.”

When looking at this from a Coca-Cola perspective, this is a way for the drink company to finally corner the hot beverage market.

James Quincey, Coca-Cola president and CEO, commented that,Hot beverages are one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform.”

James Quincey, Coca-Cola president and CEO

Coffee is one of the fastest-growing beverage categories in the world, at 6 percent, so the decision to integrate into the market now is logical from Coca-Cola.

James went on to state that “So, Coca-Cola and Costa have remarkably complementary businesses. Costa offers Coca-Cola the best opportunities to create value in coffee. We can be better together.

This is not an acquisition where we’re looking for places to save costs in the business. We’re buying Costa to grow the business and our participation in the category.”

This deal, financially, and in terms of progression, makes sense for all parties involved. Costa are maintaining the loyalty to their stakeholders and employees through what appears to be a financial bump.

This is also a logical step for Coca-Cola in being finally able to be forefront of the hot beverage market throughout the UK, with an already established brand.

View Costa Infographic (PDF)

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