Coca Cola Buys Costa Coffee

Whitbread bought Costa for £19 million 23 years ago when it had only 39 shops. The breaking news today is that Coca Cola is buying the Costa Coffee chain from Whitbread plc for just under £4 billion.

This will be an example of external business growth that students and teachers can use as a terrific case study in the relative benefits and drawbacks of acquisition.

Whitbread were planning to demerge Costa from their other businesses which include Premier Inn. Instead they have sold Costa to one of the iconic drinks manufacturers and brands. What changes can we expect?

Whitbread CEO Alison Brittain is quoted as saying that the deal was “great news” for shareholders as the price received from Coca-Cola was far higher than if it had decided to demerge the business instead.

How will Whitbread use the money? The Whitbread press release says that a significant majority of net cash proceeds intended to be returned to shareholders and the business will also use some the proceeds of the sale to reduce debt and make a contribution to the pension fund, which will both provide space for further expansion of Premier Inn in the UK and Germany.

For Coca Cola, the acquisition gives is a coffee brand with a global footprint. Costa operates in 31 markets with a total of 3,821 stores. What price on a new brand name - Coca Coffee!