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Message: <blockquote data-quote="Coralin96" data-source="post: 1785" data-attributes="member: 15">Good one!I know I said the last post would my last update for August, but this story seems worth writing about!Coca-Cola to buy the Costa Coffee chain for £3.9bnThe StoryIn a £3.9bn deal, Coca-Cola, will be buying Costa Coffee from its buyer, hospitality group Whitbread plc. The decision caused Whitbread shares to rise by 18% after the deal was announced.Impact on business and law firmsCosta is the second largest coffee shop in the globe, but competition in the UK market is fierce. Over the past year, coffee has been a major market for mergers and acquisitions. Nestle recently paid Starbucks $7.1bn to sell its coffee and purchased a stake in US coffee roaster Blue Bottle, while JAB Holdings acquired Keurig Green Mountain alongside other investors.Whitbread owns both Costa and the hotel business, Premier Inn. But while Whitbread was keen to keep the two businesses together, citing savings, some disagreed. Activist investors have been pressuring UK leisure group, Whitbread to sell Costa for some time. The hedge funds Elliot Advisors and Sachem Head called for a sale process, which was publicly resisted by Whitbread.Costa and Premier Inn, the two divisions of Whitbread already had separate legal entities and their own senior leadership teams. Until Coca Cola approached Whitman in June its plan was to undertake a demerger, spinning off the Costa business as a separate entity.Other demergers in the past have included splitting TalkTalk from Carphone Warehouse and Dr Pepper Napple from Cadbury Schweppes. Lawyers would have got involved to help the Whitbread businesses restructure, separating IT and other functions, including a pensions team .Whitbread will now have an opportunity to focus on its asset-heavy hotel business: Premier Inn. Costa had traditionally been the faster growing business of the two, but recently sales had slowed down, far below the 2% growth in Costa's 2017 tax year as consumer confidence fell . Premier Inn owns the freehold of about 3/5 of its hotels, a decision which Whitbread argues gives it better financing terms and flexibility. But many hotel operators have sold their freeholds to investors and Whitbread may now need to do the same as it loses the cash flow produced by Costa to fund its asset-heavy hotel business. Alternatively, Premier Inn could slow its growth, borrow more or invest the funds from this acquisition.Most of the cash proceeds will be returned to shareholders, although £100m will be set aside for deal-related costs. Whitbread also said it will reduce debt and contribute to ites pension fund.Whitbread first purchased Costa 23 years for £19m. Back  then, Costa turned over £55m and had 39 shops. it was also a time when tea was the most popular hot drink in the UK. Over the next two decades, a growth in disposable incomes and a trend of breakfast-on-the-go led to a growth in coffee sales. Costa would later have 2,000 outlets with an estimated total revenue of over £9bn.Before this deal was announced, Whitbread had a market capitalisation of £7.3bn, with Costa representing an estimated £2.3bn of that value. With this deal valuing Costa at 3.9bn, it shows that Coca Cola is paying a 20% premium on Costa's estimated value.In recent years, Costa has aggressively opened up outlets. It has also turned its attention to China, a country with a tradition of tea-drinking, to offset falling high street sales in Britain. Costa had set a strategy for a third of its sales to come from overseas by 2020. Costa had also been in the process of putting its Costa Express machines into convenience stores and investing in IT such as for its click and collect coffee orderingCoca Cola's acquisition reflects its CEO's appetite for less-conservative deals. In a statement, the CEO said hot drinks was "one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand".Coca Cola had $35.4bn in revenues in 2017 and a market capitalisation of over $191bn. The company could use its existing supply chains, brand and global scale to grow Costa and compete against national and international rivals.Subject to shareholder and regulatory approval, the deal is expected to close in the first half of 2019.</blockquote>

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