Shares in Whitbread have soared today on the news that an agreement has been reached with Coca Cola to buy Costa Coffee for £3.9 billion. Whitbread shares are trading as we publish today at £4,659.00 up 16%.
Whitbread who also own Premier Inn, Beefeater, Brewers Fayre and other hospitality and catering businesses had been planning to separate Costa from the business. Plans of the coffee chains spin off after pressure from some shareholders. Costa’s value in April when the plan was developed was £2.9 billion as a stand-alone business with the plan looking to be implemented in 2020. So, todays news resonated well with shareholders.
Whitbread now plan to pass most of the money raised through the sale to shareholders, analysts in the City of London are predicting £2.5- £3 billion from the sale to be returned.
For shareholders in Coca-Cola the acquisition’s strategic rationale is in positioning the business as number two behind Starbucks in the liquid gold global coffee market. Tactically Coca Cola plan to build the Costa Coffee business reach further including China.
As Europe’s biggest coffee chain, Coca-Cola could look to expand Costa’s reach on the global market as Starbucks and Dunkin’ Donuts far exceed its scale in the US. Though with a proven record of the quality of the product and distribution in hotels, restaurants, pubs and cafes the sky would seem to be the limit with Costa Coffee.
