The purchase from Britain's Whitbread of Costa's nearly 4,000 outlets thrusts the world's biggest soda company into one of the few bright spots in the sluggish packaged food and drinks sector. But the Costa acquisition gives it a much bigger piece of the coffee market, which is growing by 6 per cent a year, according to James Quincey, Coca-Cola president & CEO.
Costa also operates more than 8,000 Costa Express self-serve machines in eight countries, as well as placing its products in supermarkets. Since then, Costa has grown from just 39 shops and in the year to March, Costa made an operating profit of 123 million pounds on sales of 1.29 billion.
The deal will allow Whitbread to focus on the structural growth opportunities for its hotel business, Premier Inn, in the United Kingdom and Germany. JAB Holdings, an investment holding company, has been buying up businesses and brands associated with Peet's, Caribou, Stumptown and Krispy Kreme Doughnuts.
"I would like to say a huge thank you to our customers and to everyone in the Costa team who have helped us build the business to this position, and I look forward to the next exciting chapter in Costa's vision of "Inspiring the World to Love Great Coffee", Paul added.
"Coca-Cola are one of the few companies in the world that could justify the valuation", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Coca-Cola does already have over 500 brands in its stable including Fanta, innocent smoothies and Powerade sports drinks. It has invested heavily in Costa's expansion overseas recently, but had been looking to siphon off the business to generate funds for the expansion and for its other business, the budget hotel chain Premier Inn.
Whitbread acquired Costa in 1995 from its founders, Sergio and Bruno Costa, and presently runs about 2,400 stores in the United Kingdom and some 1,400 around the world.
The deal still needs to get approval from shareholders and regulators, and is expected to be completed in the first half of 2019, the companies said.
Meanwhile following pressure from activist shareholders, Whitbread announced in April that it would spin off Costa, leaving it to concentrate on its hotel chain Premier Inn.
Shareholders in Whitbread were impressed by the deal and the company's share price soared 16 percent in morning trading in London.
She said the money from the sale would be used to expand the Premier Inn chain, return some cash to shareholders, pay down debt and boost the pension fund.