Coca-Cola joins coffee sector, acquires Costa

Costa Coffee will return most of the proceeds from the Coca Cola to shareholders

The £3.9-billion (US$5.1-billion) sale of the Costa Inc. coffee chain to the Coca-Cola Company began brewing when Whitbread Group PLC's boss Alison Brittain crossed paths with the chief executive of the soft-drinks giant at a conference.

The deal for £3.9 billion ($5.1 billion, 4.3 billion euros) comes as consumer demand for conventional carbonated drinks shrinks in the United States and other markets owing to health and obesity concerns.

Costa Coffee is the UK's largest coffee retailer with a presence in over 30 countries across Europe, Africa, Middle East and Asia-Pacific, including China and India.

The Costa deal opens a new business line for a company synonymous with fizzy, sugary beverages such as Coca-Cola, Sprite and Fanta, underscoring the pressure to find new areas of growth as consumer tastes change.

Coca-Cola is hoping for a caffeine-fueled boost with the acquisition of British coffee chain Costa.

As well as being the largest United Kingdom coffee chain, Costa is also the world's second largest.

In the UK, Costa operates thousands of self-service coffee machines in stores and gas stations, a model that could be expanded to the US.

Whitbread acquired Costa in 1995 for 19 million pounds when it had only 39 shops. "The acquisition will expand the existing Coca-Cola coffee lineup by adding another leading brand and platform".

Following Coca-Cola's $5.1 billion purchase of the ubiquitous United Kingdom coffee chain, the company plans to target the fast-growing ready-to-drink coffee market in the USA, rather than set up stand-alone shops like new rival Starbucks. With the Costa acquisition, Coke will aim its expanded products at the millions of vending machines and convenience stores that cover the US, especially as consumers turn away from the sugary sodas that they used to purchase from the very same locations.

JAB added the United Kingdom -based food-and-coffee chain Pret A Manger in a $2 billion deal earlier this year, following its past acquisitions of high-end coffee brands Peet's and Stumptown.

"Costa is a fantastic business with committed and passionate associates, a great track record and enormous global potential", said Dominic Paul, managing director at Costa, in a statement. The soft-drink giant also sells coffee under the Georgia brand in Japan and has some other local products for specific markets.

Shares in Whitbread jumped 18 per cent after it announced the deal on Friday. All three companies have taken significant strategic moves over the past year; in May, Starbucks sold its worldwide grocery packaged coffee business to Nestlé S.A. for $7.2 billion, while JAB Holdings, which owns Keurig Green Mountain, completed that company's multi-billion dollar merger with Dr Pepper Snapple earlier this summer.

Chief executive Alison Brittain said Whitbread would now focus on its Premier Inn business in the United Kingdom and Germany. That makes India among the few markets in which Costa Coffee is aligned directly with a PepsiCo bottling partner.

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