Coca-Cola acquires Costa coffee chain

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Costa gives us access to this market with a strong coffee platform".

As consumers shy away more and more from sugary soft drinks, Coca-Cola has found a new way to cater to them: serve them coffee. Meanwhile, if Coke were to roll out canned or bottled Costa coffee drinks through its USA bottling system, that could upset the dominance of a joint venture between Starbucks and PepsiCo, trade publication Beverage Digest said.

The company, which started with a single coffee shop in London's Vauxhall Bridge Road in 1978 by brothers Sergio and Bruno Costa, has grown into Britain's dominant coffee chain.

"They have been scanning for a coffee acquisition and they have been doing work on Costa for quite some time", she said.

Coca Cola says the acquisition of Costa from parent company Whitbread PLC for $5.1 billion will give it a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion. Coca-Cola Chief Executive Officer James Quincey said the Costa transaction is a "serious and significant investment" in hot beverages, a market that still remains largely fragmented. Worldwide, coffee remains a largely fragmented market, and no single company operates across all formats on a global basis. And in another union of the java and soft-drink worlds, JAB's Keurig Green Mountain Inc. this year bought Dr Pepper Snapple Group for $18.7 billion.

It has recently expanded into China after growth in Britain became harder to find in a market bursting with chains such as Starbucks, Caffe Nero and thousands of independent outlets.

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Costa, which doesn't now have a presence in North or South America, was the third-largest coffee shop chain globally in 2017, according to market research provider Euromonitor International, just behind McDonald's McCafe outlets but well behind Starbucks. Costa Express has 8,237 candy machines around the world. Quincey indicated that one potential early expansion route would be to use Costa's vending operation and expand the company's ready-to-drink products.

"Coca-Cola is one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Whitbread said it will reduce the debt and contribute to the pension fund with the amount of the agreement and further expand its Premier Inn hotel chain in the United Kingdom and Germany.

Then Coca-Cola got in touch with what Whitbread said was a "highly compelling" offer. The deal should be completed in the first half of 2019, Whitbread said in a statement.

Following pressure from activist shareholders, Whitbread revealed in April that it would spin off Costa, leaving it to concentrate on its hotel chain Premier Inn.

Whitbread's share price soared 14 per cent. Coca-Cola shares were little changed.

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