Coca-Cola Considers Selling UK's Costa Coffee In Shock £2bn Move — Just Years After £3.9b Takeover

Coca-Cola is in talks with investment bank Lazard to review options involving a £2 billion ($2.7 billion) sale of Costa Coffee. The soft drink company had acquired the Costa brand in 2018 from Whitbread, the Premier Inn hotel chain owner, for £3.9 billion ($5.2 billion). Reports have said that the company has already had discussions with potential bidders, which include private-equity firms.

Coca-Cola on Why Discussions are Happening

Coca-Cola is in discussions with bankers from Lazard to see options for Costa. This comes with gauging interest from buyers, with preliminary offers expected in early autumn.

Analysts have noted that Costa's sale could realise a multibillion-pound loss for the American soft drinks company. Sky News was the first outlet to report the sale talks, revealing that the coffee chain would be worth just £2 billion.

This is significantly less than what Coca-Cola got from their purchase dating a little over 7 years ago. It's nearly half what the company had paid for the business.

While Coca-Cola and Lazard are still being tapped for comments, the former's chief executive, James Quincy, had a word with investors a month prior.

Quincy said that Costa had 'not quite delivered', and was 'not where we wanted it to be from an investment hypothesis point of view'. He also added that they were 'in the mode of reflecting' on what they've learned.

Upon their purchase of the British coffee chain, Quincey said it offered 'great opportunities for value creation'. But now, they are re-approaching how they want to find more avenues for growth in the coffee market.

The deal for Costa's acquisition was intended to widen Coca-Cola's global reach in the beverage market. The chain does business in dozens of countries, including India, Japan, Mexico and Poland.

In addition, Costa operates a network of thousands of coffee vending machines at an international scale under their Costa Express brand.

Given the circumstances and the potential that Costa has, Coca-Cola could also decide not to proceed with a sale.

Costa Coffee's Recent Financial Performance

Costa Coffee was founded in 1971 by Italian brothers Sergio and Bruno Costa. In 1995, the duo sold the brand to Whitbread for £19 million ($25 million). At the moment, it's one of Britain's private sector employers with a nearly-omnipresent stature across the country's high streets.

In the UK, Costa has more than 2,000 outlets with nearly 18,000 employees. However, the chain has struggled with rising costs, competition and rising coffee bean prices as of late.

Some of their notable rivals include Caffè Nero, Gail's, Pret a Manger and Starbucks. As per recent annual accounts filed at Companies House, Costa turned over £1.22 billion ($1.6 billion) for its financial year in 2023. This follows a 9% increase from their 2022 accounts.

However, the same files showed a pre-tax loss of £9.6 million ($12 million), compared with a profit of £245.9 million ($332.5 million) the year prior. Costa acknowledged the loss and cited inflationary pressure, along with write-downs on the value of some investments.

This suggests that Costa Coffee's financial performance has been mixed. Notably though, they were able to pay out £250 million ($338 million) in dividends to Coca-Cola.