Whitbread sells Costa Coffee to Coca-Cola for £3.9bn – business live

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Whitbread is selling the coffee chain to focus on its Premier Inn hotels. The group bought Costa in 1995 for £19m when it had 39 shops. It now has almost 4,000 shops in 32 countries

Whitbread is the runaway leader of the FTSE 100, with shares jumping 18% in early trading to £47.55.

Investors clearly think the group has got a deal, selling its Costa Coffee chain to Coca-Cola for £3.9bn (having bought it for £19m in 1995.

It is with some surprise that investors are digesting today’s announcement from Coca Cola that they have agreed a deal to buy the coffee chain for $5.1bn. It would appear that the US business, like a lot of its peers, is looking to diversify away from its core business of sugary drinks, an area that has been increasingly attracting government ire due to a rising global obesity problem.

Investors certainly appear to like the deal, not surprising given the pledge that most of the proceeds look set to be returned to shareholders, with the shares rising strongly on the open hitting their highest levels since December 2015.

Neil Wilson, chief market analyst at markets.com, says that Alison Brittain has acted faster than expected, after announcing plans in April to demerge Costa Coffee from the rest of the Whitbread group in response to investor pressure.

He says it looks like a good deal for Whitbread:

Clearly Coca-Cola sniffed an opportunity to gain an attractive brand with a fast-growing global presence. It’s a pretty good return too on the £19m Whitbread paid for the coffee chain over 20 years ago.

From the Coca-Cola perspective, initial thoughts are that it marks a substantial investment in branded coffee and places it squarely against Nestle and Starbucks. Can’t help but feel Coca-Cola thinks this is the ideal way into a frothy market that it’s maybe missed out on so far.

Back to the growth story at Costa, the concern is that sales growth is stalling. Costa is exposed to areas like the high street where lower footfall translates into fewer cups of coffee being sold.

First quarter Costa UK sales growth of 5.2% was driven by new stores and Express machines – we note particularly strong growth in Express of 9.6% in the quarter. But LFL declined by 2%, which management put down to the ‘general retail market conditions’.

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