Beverage giant Coca-Cola has dished out a skimpy £3.9 billion ($5.1 billion) to buy UK coffee franchise Costa Coffee, making the British company a wholly owned subsidiary.
The Press Association hinted at a possible buyout earlier this year, noting that Whitbread had been informally approached for a deal.
A Whitbread press release highlighted an expected £3.8 billion in net cash proceeds after transaction and separation costs, as well as allowing the business greater focus on UK and German markets for its Premier Inn hotel franchise.
"This transaction is great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash," Alison Brittain, Whitbread Chief Executive, said.
She also noted that merger proceeds would return to shareholders, reduce company debt, and make necessary contributions to the company's pension fund scheme.
Here is why Coca Cola are buying Costa Coffee for £3.9 billion — because it doesn't have a global coffee brand (yet…)Atlanta-based Coca-Cola lauded the deal, stating the company needed to "make a serious and significant investment in the category, because it's the right thing to do to serve our consumers with more of the drinks they want," James Quincey, Coca-Cola CEO said in a press statement.
— Sean Farrington (@seanfarrington) August 31, 2018
However, Quincey reassured that it would make minimal changes to Costa's business model and would not constitute a hostile takeover. "It's very important to me that we let Costa be Costa," he stated.
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Costa Coffee was founded by Sergio and Bruno Costa, and had around 40 shops when Whitbread acquired it for £19 million in 1995. The company was founded in London, but moved operations to Dunstable, Bedfordshire. It currently has 2,121 UK shops and an additional 1,280 overseas venues.
Coca-Cola's move comes after its competitor, New York-based PepsiCo, acquired controversial fizzy drink maker SodaStream August 20 for $3.2 billion, stating it did so to remain competitive in the health-conscious food and beverage industry. The company, founded in England in 1903, is headquartered in Lod, Israel.
The increased competition has motivated the two food and drink multinationals to revise their marketing strategies by buying out overseas companies. The Office for National Statistics (ONS) noted in 2016 that 24,345 companies registered in the UK were foreign-owned, mostly in the non-financial business sector.
Costa Coffee is not the only British company to get taken under the wings of foreign multinationals. Nestle SA and Reimann family investment company JAB recently nabbed Blue Bottle Coffee and Chameleon Cold Brew, Bloomberg reported. JAB also took over British-owned Pret-A-Manger for $2 billion earlier this year.
