=Coca-Cola (KO) buys British Costa Coffee chain for $5.1B

The company said Friday it will buy the Costa coffee brand from British firm Whitbread for 3.9 billion pounds ($5.1 billion) in cash. Costa is Britain's biggest coffee company with over 2,400 coffee shops in the U.K. and another 1,400 in more than 30 countries. It has 460 in China, its second-biggest market.

Costa Limited, which was founded in London in 1971, has grown to become a major coffee brand across the world. The acquisition of Costa from parent company Whitbread PLC is valued at $5.1 billion and will give Coca-Cola a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion.

• Coca-Cola expects the transaction to be slightly accretive in the first full year, not taking into account any impact from purchase accounting. For the fiscal year 2018 (ending March 1, 2018), Costa generated revenue and EBITDA of 1.3 billion and 238 million GBP, respectively. This equates to roughly $1.7 billion in revenue and $312 million in EBITDA. 
• Because Coca-Cola expects the transaction to close in the first half of 2019, there is no change to 2018 guidance. The company's long-term targets also remain unchanged. Coca-Cola will provide additional information as part of comprehensive guidance provided during the fourth quarter 2018 earnings call.

Coca-Cola, which has over 500 brands in its stable including Fanta, innocent smoothies and Powerade sports drinks, certainly has the deep pockets to help push Costa on the world stage. In 2017, it generated operating income of $9.7 billion on revenues of $35.4 billion.

The deal represents a big return to Whitbread, which bought Costa in 1995 for 19 million pounds. 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.

In recent years, Whitbread has invested heavily in Costa's expansion overseas, 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.