31st Aug 2018 08:52
LONDON (Alliance News) - Whitbread PLC on Friday said it agreed the sale of its Costa Coffee business to US beverage giant The Coca-Cola Co at an enterprise value of GBP3.9 billion.
The stock jumped 17%, trading at 4,710.00 pence per share in response to the news.
Whitbread, which also owns the Premier Inn hotel chain, is expecting net proceeds of GBP3.8 billion, and said most of this will be returned to shareholders.
The sale, the company continued, will reduce debt and also allow for an increased pension contribution and further expansion of Premier Inn in both the UK and Germany.
Whitbread believes a "substantial" premium would have been created by its planned demerger of Costa Coffee, which was announced in April this year. At the time the company had described itself as "committed" to demerging Costa after the coffee chain saw a decline in annual profit.
Back in April, the FTSE 100-leisure firm had said a demerger was in the "best long-term interests" of the company's shareholders, and it expected a deal to be completed within 24 months.
Whitbread said Friday it expects the sale to Coca-Cola to be completed in the first half of 2019, after shareholders' and regulatory approval.
"The Whitbread board unanimously agreed that the transaction is in the best interests of shareholders," the company said.
In addition, Whitbread and Coca-Cola have also entered into a transitional services agreement, under which Whitbread will provide various services including IT, procurement and HR services to Coca-Cola for 12 to 24 months.
April's restructuring update came as Whitbread posted its full-year results for the 12 months to March 1. In the period, revenue rose to GBP3.30 billion, from GBP3.11 billion the year before, as pretax profit climbed to GBP548.4 million from GBP515.4 million. By division however, Costa's profit slipped to GBP122.6 million from GBP129.7 million a year prior, while Premier Inn's profit surged to GBP497.5 million from GBP457.3 million.
Post period end, Costa's first quarter sales rose 4.9%, with a 5.2% increase in the UK. UK like-for-like sales were down 2.0% however.
Whitbread acquired Costa in 1995 for GBP19 million from founders Sergio and Bruno Costa when it had only 39 shops. It now operates 3,800 stores in over 30 countries, the company said.
Chief Executive Alison Brittain said Friday: "I am delighted we have agreed the sale of Costa to Coca-Cola for GBP3.9 billion. This transaction is great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash."
Meanwhile, Coca-Cola Chief Executive Officer James Quincey said he believed Costa adds new capabilities to the soft drink company, which can help the coffee chain to grow worldwide.
"Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform," he added.
After the sale, Whitbread said it intends to focus on Premier Inn's "attractive structural growth opportunities" both in the UK and Germany.
CEO Brittain added: "Premier Inn, the UK's leading hotel business, will continue to develop its highly successful and unique business model, with even greater focus and financial investment. Premier Inn will continue to take advantage of the considerable structural growth opportunities in the UK and accelerate its network expansion in Germany. This will deliver strong return on capital and significant value to shareholders over the long term."
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