Whitbread sell Costa to Coca-Cola in ‘rags to riches’ deal

Coca-Cola to buy coffee shop chain Costa Coffee from Whitbread.

Whitbread sell Costa to Coca-Cola in ‘rags to riches’ deal

Whitbread PLC (LON:WTB) has agreed to sell the Costa Coffee chain to Coca-Cola in a deal thought to be worth GBP3.9 billion.

Plans to demerge Costa

Whitbread had signalled earlier in the year that it was planning to demerge Costa but believes that this deal has delivered a substantial premium to what it would have otherwise achieved being listed separately. The company, which also owns Premier Inn, Brewer’s Fayre and Beefeater, has said that the majority of the proceeds will be returned to shareholders. It will also allow them to reduce debt and increase pension contributions.

Great news for shareholders

Chief Executive, Alison Brittain said: “This transaction is great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash.” (Alliance News). She continued to say that the company was looking to focus on developing the Premier Inn chain and capitalise on UK growth opportunities.

International expansion

Whitbread purchased Costa’s then 39 shops in 1995 for a mere GBP19million. It now boasts over 2,400 coffee shops and outlets and is looking towards international expansion. As a result, it’s main shareholder, Elliott Advisors called for a demerger, believing that as a separate company the two firms could achieve a combined valuation of GBP10 billion, as opposed to GBP7.7 billion as one company.

Bitter sweet moment for investors

As reported by Sky News, Hargreaves Lansdown equity analyst, Nicholas Hyatt, said: “This is a bitter sweet moment for Whitbread investors….on the one hand, £3.9 billion is an undeniably rich valuation and likely far better valuation than costa could achieve as an independently listed company,….on the other hand, Costa has long been the jewel in Whitbread’s crown and some will be sad to see it go at any price, especially given the growth potential in China and elsewhere.”

Share price rockets

The news has had a huge impact on Whitbread’s share price which has rocketed by 16 per cent this morning on the back of the news, now trading at 4650.00, up 15.67 pence,  compared with the benchmark index which is currently down 18.20 to 7497.83 (-0.24%), both correct as of BST 09.27.

As of 10:26 BST, Friday, 31 August, Whitbread plc share price is 4,170.50p.

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