Coca-Cola to buy UK’s Costa Coffee chain for $5.1 billion

The current owner Whitbread announced a plan to spin off Costa earlier this year

The current owner Whitbread announced a plan to spin off Costa earlier this year

Since then, Costa has grown from just 39 shops to become the biggest coffee firm in Britain.

Whitbread shares soared the most in 19 years as analysts said the business fetched a surprisingly high price.

Shares in Whitbread Plc have surged nearly 20 percent on news of the deal on Friday, adding more than £1 billion ($1.3 billion) to the group's stock market value, as financial analysts said the price was markedly higher than expected. Coca-Cola Chief Executive Officer James Quincey said the Costa transaction is a "serious and significant investment" in hot beverages, a market that still remains largely fragmented.

Costa owner Whitbread will seek shareholder approval to complete the deal, which is expected to happen by mid-October. JAB, the holding company that owns Peet's Coffee, bought United Kingdom sandwich and coffee chain Pret A Manger in May.

Following pressure from activist shareholders, Whitbread revealed in April that it would spin off Costa, leaving it to concentrate on its hotel chain Premier Inn.

In buying Costa, Coke has now acquired the world's second largest specialty coffee chain, but one many outside Europe and Asia may be unfamiliar with.

Costa, which has more than 1,400 stores in more than 30 worldwide markets, gives Coca-Cola the ability to challenge Nestle (Swiss: NESN.VX - news) and Starbucks. Coca-Cola is getting into the coffee business.

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The sale will yield a "substantial premium" to the value that would have been created through a spinoff, Whitbread said, adding it will return most of the proceeds to its shareholders.

"This transaction is great news for shareholders as it recognizes the strategic value we have developed in the Costa brand and its global growth potential and accelerates the realization of value for shareholders in cash", said Alison Brittain, Whitbread's chief executive.

The plan was that Costa would be spun off at some time in the next two years, but Coca-Cola pre-empted that with a knockout offer. Its parent company, Whitbread, also operates the Premier Inn hotel chain.

After missing out on the heady growth phase of coffee shops, Coca-Cola is entering when the market in countries like the United Kingdom and the U.S.is crowded.

Whitbread shares soared almost 20% in early morning trade, catapulting it to the top of the FTSE 100.

Coca-Cola shares were slightly down Friday in mid-morning trading.

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