£3.9bn Costa buy sees Coca-Cola enter hot beverages market

Coca-Cola CEO'We try to be more than a soda company

The acquisition adds a "scalable" coffee platform with critical know-how and expertise in a fast-growing, on-trend category, and expands Coca-Cola's existing coffee line up, which now includes Japanese coffee brand Georgia.

In addition to its shops, Costa has self-serve coffee machines in grocery stores and gas stations.

It's Coca-Cola's latest move to diversify as health-conscious consumers, at least in America, move away from traditional soda.

The company said on Friday it will buy the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash.

In recent years, the focus has been on evolving Costa into a leading multi-channel, global coffee brand. 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.

"Coca-Cola are one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Besides its thousands of retail stores, Costa Coffee also has smaller on-the-go outlets called Costa Express, a roastery and for-home coffee products.

"Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn't have a killer brand", he said.

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Coca-Cola, which has over 500 brands in its stable including Fanta, innocent smoothies and Powerade sports drinks, certainly has the deep pockets to help push Costa on the world stage.

Whitbread acquired Costa back in 1995 for £19 million when it had only 39 shops and successfully grew the business to be the UK's largest coffee shop company.

"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".

The deal, expected to complete in the first half of 2019, plugs a big hole in Coca-Cola's portfolio.

Whitbread shares soared almost 20% in early morning trade, catapulting it to the top of the FTSE 100.

She said the money from the sale would be used to expand the Premier Inn chain, return some cash to shareholders, pay down debt and boost the pension fund.

Meanwhile following pressure from activist shareholders, Whitbread announced in April that it would spin off Costa, leaving it to concentrate on its hotel chain Premier Inn.

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