Coca-Cola’s $5.1bn Acquisition of Costa Coffee

By Marin Lovin (UCL) 25/09/2018 |


Overview of the deal

  • Acquirer: Coca-Cola Company

  • Target: Costa Limited

  • Estimated value: $5.1bn

  • Announcement date: 21/08/2018

  • Acquirer Advisors: Rothschild & Co

  • Target Advisors: Goldman Sachs, Morgan Stanley, Deutsche Bank

Whitbread’s divestiture of the Costa Coffee chain stems from mounting pressure from hedge funds holding shares in the company. Though this divestiture idea has been previously suggested by London analysts and pushed for by U.S. hedge fund Sachem Head, it is Elliott Management, an activist U.S. hedge fund and the largest investor in the FTSE 100 company, that has been driving the decision. Believing that breaking up Whitbread could create $3bn of value, Elliott Management has built up a 6% stake in Costa’s parent company and utilised it aggressively by taking an activist investor approach in favor of the divestiture.

Coca-Cola’s $5.1bn bid came at a time when Whitbread had been actively working on the divestment, resulting in a quick deal code-named ‘Project Del Sol’. Though surprising to the public, the deal’s swiftness could signify the confidence of all parties in the transfer of the coffee chain - Whitbread through focusing on its low-cost hotel chain Premier Inn and UK restaurant chains, Coca-Cola by diversifying its notoriously unhealthy soda business to reflect a growing customer trend towards healthier beverages, and Costa by leveraging on Coca-Cola’s large global distribution network to open new expansion prospects.

The Costa deal, which will help broaden Coca-Cola’s portfolio, plays to Asia’s evolving consumer demand. The region’s buyers — who tend to have a “broad-based” palate for beverages — will seek more diverse products as middle classes grow, urbanisation accelerates and technology keeps evolving, said Mr Murphy. -John Murphy, Asia Pacific president at Coca-Cola

Company details (Coca-Cola Company)

The Coca-Cola Company is a global U.S. manufacturer and distributor of non-alcoholic beverages, with a portfolio of over 500 brands including Coca-Cola, Sprite and Fanta. Whilst being known mainly as a soft drinks producer, the company also produces bottled water, sports drinks and soy-based beverages.

- Founded in 1892, headquartered in Atlanta, Georgia, U.S.

- President and CEO: James Quincey

- Number of employees: 61,800

- Market Cap: $194.6bn - EV: $223.8bn

- LTM Revenue: $33.1bn - LTM EBITDA: $11.0bn

- LTM EV/Revenue: 6.8x - LTM EV/EBITDA: 20.4x

Company details (SodaStream International Ltd.)

Costa Limited, a wholly-owned subsidiary of the UK multinational hospitality group Whitbread, is the UK’s largest coffee outlet. As of 2018, Costa operates 3,821 stores in 31 markets worldwide. Whitbread acquired Costa in 1995.

- Founded in 1971, headquartered in Dunstable, UK

- Costa Coffee CEO and Managing Director: Christopher Rogers

- Whitbread CEO: Alison Brittain

- Number of employees: 18,421

- FY2018 Revenues: $1.70bn - FY2018 EBITDA: $312.0m

*Currently privately held, hence lack of financial information