Costa’s operations include a leading brand, nearly 4,000 retail outlets with highly trained baristas, a coffee vending operation, for-home coffee formats and its state-of-the-art roastery. For the cola giant, the expected acquisition will add a scalable coffee platform with critical know-how and expertise in a fast-growing, on-trend category.
The fast-growing coffee category will offer opportunities for the additional expansion of the Costa brand, which was founded in London in 1971 and has grown to become a major coffee brand across the world, in multiple channels and formats.
It ranks as the leading coffee company in the United Kingdom and has a growing footprint in China, among other markets. Costa has a solid presence, with Costa Express, which offers barista-quality coffee in a variety of on-the-go locations, including gas stations, movie theatres and travel hubs.
Costa, in various formats, has the potential for further expansion with customers across the Coca-Cola system. The acquisition will expand the existing Coca-Cola coffee lineup by adding another leading brand and platform. The portfolio already includes the market-leading Georgia brand in Japan, plus coffee products in many other countries.
Following the acquisition, Coca-Cola will also have strong expertise across the coffee supply chain, including sourcing, vending and distribution. This will be a complement to existing capabilities within the Coca-Cola system.
“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said James Quincey, president and chief executive officer, Coca-Cola.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform,” he added.
Coffee is a significant and growing segment of the global beverage business. Worldwide, coffee remains a largely fragmented market, and no single company operates across all formats on a global basis.
“The Costa team and I are extremely excited to be joining The Coca-Cola Company,” said Dominic Paul, managing director, Costa.
“Costa is a fantastic business with committed and passionate associates, a great track record and enormous global potential. Being part of the Coca-Cola system will enable us to grow the business farther and faster,” he added.
“I would like to say a huge thank you to our customers and to everyone in the Costa team who have helped us build the business to this position, and I look forward to the next exciting chapter in Costa’s vision of inspiring the world to love great coffee,” Paul said.
Transaction details
The purchase price is £3.9 billion. This translates to approximately $5.1 billion. Upon the closing, The Coca-Cola Company will acquire all issued and outstanding shares of Costa Limited, a wholly-owned subsidiary of Whitbread. This subsidiary contains all of the existing operating businesses of Costa.
Whitbread will be seeking shareholder approval for the transaction, which is expected to take place by mid-October. The deal is subject to customary closing conditions, including anti-trust approvals in the European Union (EU) and China. It is expected to close in the first half of 2019.
Coca-Cola expects the transaction to be slightly accretive in the first full year, not taking into account any impact from purchase accounting. For the fiscal year 2018 (ending March 1, 2018), Costa generated revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) of £1.3 billion and £238 million, respectively. This equates to roughly $1.7 billion in revenue and $312 million in EBITDA.
Because Coca-Cola expects the transaction to close in the first half of 2019, there is no change to 2018 guidance. The company’s long-term targets also remain unchanged. Coca-Cola will provide additional information as a part of the comprehensive guidance provided during the fourth quarter 2018 earnings call.
Advisors
Rothschild acted as exclusive financial advisor to The Coca-Cola Company. Clifford Chance acted as legal counsel to The Coca-Cola Company, and Skadden, Arps, Slate, Meagher & Flom acted as tax counsel to The Coca-Cola Company.
