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Buy Coca Cola for $ 5.1B



Coca-Cola Co. said on Friday that they would buy the British coffee shop chain Costa for $ 5.1 billion, which further away from their soft drink roots and offered the last bet of a large consumer goods group on coffee

The move would be the biggest brand acquisition in the history of Coca-Cola and a gamble that pulls the soda-lore into the overcrowded retail world and Starbucks Corp. which has more than 27,000 cafes around the world.

The Deal gives Coke a large stationary retail presence, though not in the US Costa has nearly 4,000 stores in 32 countries, including a growing presence in China. Founded in London in 1971, it also sells coffee in grocery stores and gas stations.

In an interview, Coca-Cola CEO James Quincey said the transaction was a bet on the fast-growing and still fragmented global coffee business. "This is a coffee strategy, not a retail strategy," said Mr. Quincey, a Briton who took over Coke's CEO position in May 201

7.

Mr. Quincey said that Coke currently has no plans to open Costa Coffee Shops in the US, but the company will sell Costa machines and coffee beans to US gas stations, universities and fast food outlets.

"Consumers want to continue to spend more on drinks," Mr. Quincey said. "They just want a bigger variety" including "coffee in its different formats."

Beverage manufacturers have been looking for growth as consumers move away from sugary sodas. PepsiCo Inc. bought Seltzer machinery manufacturer SodaStream International Ltd. earlier this month. for 3.2 billion dollars. The smaller rival dr. Pepper Snapple merged this summer with Keurig, the coffee company that made single serve K cups popular.

Coca-Cola said its Costa purchase would give it a strong position in coffee in parts of Europe, Asia and the Middle East that would allow Costa to expand into China. It already sells some coffee products and owns the world's largest ready-to-drink coffee brand, Georgia, which generates strong sales in Japan.

Coffee has been a hotly contested area for deal-making lately. Earlier this year, Nestlé SA acquired the rights to sell Starbucks in grocery stores and retail outlets for more than $ 7 billion. Also JAB Holding Co., a European holding company, has aggressively specialized in the purchase of coffee.

Cola buys Costa from British leisure group Whitbread PLC, which also owns the Premier Inn hotel brand in the UK and Germany. The company, which announced in April a potential outsourcing of the Costa to the Atlantic, said it would return the most money to shareholders. His shares rose 18% Friday morning.

Whitbread Chief Executive Alison Brittain said Coca-Cola was not the only interested party, but suggested that the global reach of the US beverage giant allowed him to offer the most attractive deal. The agreement, which is expected to be completed in the first half of 2019, was signed just eight minutes before its announcement on early Friday.

Costa generated a gain of £ 1.3 billion ($ 1.69 billion) in interest, taxes and depreciation of £ 238 million for the year ended March 1. In comparison, Starbucks had $ 22.4 billion in sales and Coca-Cola $ 35.4 billion in the past fiscal year

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Ian Walker at ian.walker@wsj.com

Coca-Cola Co. said on Friday that they would buy the British coffee shop chain Costa for $ 5.1 billion, which is further away from their soft drink roots and the last bet of a large consumer goods company Coffee distinguishes.

The move would be the biggest brand acquisition in the history of Coca-Cola and a gamble that will pull the soda giant into the crowded retail world and Starbucks Corp. which has more than 27,000 cafés around the world.

The deal gives Cola a large stationary retail presence, albeit not in the US Costa's red and white cups are served from around 4,000 cafés, including some 2,500 in the UK and a growing presence in China. Founded in London in 1971, it also sells coffee in grocery stores and gas stations.

In an interview, Coca-Cola CEO James Quincey said the transaction was a bet on the fast-growing and still fragmented global coffee business. "This is a coffee strategy, not a retail strategy," said Mr. Quincey, a Briton who took over Coke's CEO position in May 2017.

Mr. Quincey said that Coke currently has no plans to open Costa Coffee Shops in the US, but the company will sell Costa machines and coffee beans to US gas stations, universities and fast food outlets.

"Consumers want to continue to spend more on drinks," Mr. Quincey said. "They just want bigger variety" including "coffee in its various formats."

Coke and its sodarivars have been looking for growth as consumers shift from sugary soft drinks. PepsiCo Inc. recently acquired Seltzer machinery manufacturer SodaStream International Ltd. for 3.2 billion dollars. The smaller rival Dr Pepper Snapple merged this summer with Keurig, the coffee company that made single serve K cups popular.

Coke already sells some coffee products and owns a ready to drink coffee brand called Georgia, which is popular in Japan, but Coke said the purchase would give him a stronger coffee presence in parts of Europe, Asia and the Middle East and allow him to Costa in China to expand. Rival PepsiCo has a longstanding partnership with Starbucks to sell its ready-to-drink beverages.

Coffee has been a hot deal deal lately. Earlier this year, Nestlé SA acquired the rights to sell Starbucks in grocery stores and retail outlets for more than $ 7 billion. JAB Holding Co., a European holding company, has also aggressively specialized in the purchase of coffee.

Cola buys Costa from British leisure group Whitbread PLC, which also owns the Premier Inn hotel brand in the UK and Germany. The company, which announced in April a potential outsourcing of the Costa to the Atlantic, said it would return the most money to shareholders. His shares rose 18% on the early trading day.

Whitbread had been pressured by active investors to break up with his coffee business. Coke contacted the company in June for a possible takeover, the executives said.

Whitbread's chief executive Alison Brittain said Coca-Cola was not the only interested party, but said that the global reach of the US beverage giant could provide him with the most attractive deal. The agreement, which is expected to be completed in the first half of 2019, was signed just eight minutes before its announcement on early Friday.

Costa generated a gain of £ 1.3 billion ($ 1.69 billion) in interest, taxes and depreciation of £ 238 million for the year ended March 1. By comparison, Starbucks had $ 22.4 billion in sales last year and $ 35.4 billion in Coca-Cola. Sales of Costa Stores remained unchanged, though overall sales continued to increase as the company gained additional outlets to expand its express coffee machine network. Some of the sales by these machines have cannibalized business from existing outlets, Ms. Brittain said on a conference call on Friday.

Costa has more UK locations than Starbucks, but the brand is in the Americas, where little known Starbucks has more than 16,000 locations. Costa's largest international market is China, where it has about 450 stores, but even there it is overshadowed by Starbucks' approximately 3,000 locations.

Costa's presence in China offers growth opportunity for Coke, said GlobalData analyst Jonathan Davison. Hot beverage sales have more than doubled in the last five years, Davison said, estimating that the Chinese retail hot drinks market will reach $ 34 billion by 2022.

Mr. Quincey acknowledged that retail expansion would pose a challenge to the beverage manufacturer, which currently relies on distributors, grocers and restaurants to sell its drinks. Retail is "clearly not our expertise," he said, adding that Coca Costa keeps retail management team in place.

Coca-Cola said the deal is expected in mid-2019 and the transaction to easily add to its profits next year. The company said it did not change its long-term financial goals.

When Mr. Quincey took over Coca Cola from longtime leader Muhtar Kent, he promised to accelerate the development of products beyond his well-known cola brand. The company's revenues have been declining for several years as it reduced the bottlers and counteracted the amounts of caustic soda.

Coke's largest acquisition so far was the acquisition of Glaceau in 2007, the company behind the vitaminwater and smartwater brands. The company has closed smaller deals since acquiring Quincey, including the purchase of Mexican seltzer Topo Chico and its stake in Gatorade's BodyArmor competitor.

The Coca-Cola shares were hardly changed before the stock market. The stock fell 2% last year and missed a broad stock market rally that has boosted the S & P 500 Index by more than 17% to record highs.

– Robert Wall contributed to this article.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Ian Walker at ian.walker@wsj.com


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