Coke makes $5.1bn bet on coffee market with Costa deal

Bloomberg

Coca-Cola Co. is making an audacious move into coffee and retail outlets with the $5.1 billion purchase of UK chain Costa, its biggest acquisition
in eight years and a push into the fiercely competitive java market.
The soft-drinks company swooped in after Whitbread Plc announced a plan in April to spin off the business. The transaction gives Coca-Cola instant heft in a business from which it was all but absent, with 3,800 stores in 32 countries and a foothold in China. Highlighting Coke’s desire to close the deal, Whitbread CEO Alison Brittain said the two sides signed just minutes before the announcement, after Coke first approached the other party in June.
“It’s been a very fast transaction,” Brittain said on a call with journalists and analysts.
And for Whitbread investors, it’s a deal they cheered on, with the shares soaring the most in almost two decades, even as Coke shares were muted.
A spinoff would have initially yielded smaller returns and might have taken as long as two years.
The Costa deal opens a new business line for a company synonymous with fizzy, sugary beverages like Coca-Cola, Sprite, or Fanta, underscoring the pressure to find new areas of growth as consumer tastes change. Arch-rival PepsiCo Inc. agreed this month to buy SodaStream Ltd for $3.2 billion. Coca-Cola CEO James Quincey said the Costa transaction is a “serious and significant investment” in hot beverages, a market that still remains largely fragmented.
Coke’s approach was unsolicited, as the company was keen to get a foot in the door before Costa was snapped up by one of the giant players in the coffee business, a person familiar with the matter said. Coke is keen to leverage Costa’s global reach as it becomes a retail brand owner for the first time, the person said.
Quincey touted the benefits of having a retail platform with Costa because it supports the brand and creates growth in so-called “immediate consumption” outlets that are stationed anywhere from supermarkets to airports. Costa would also be able to expand into ready-to-drink categories using Coke’s expertise and marketing heft, making the two businesses
“remarkably complementary.”