Dunstable / UK. (wbp) British Whitbread PLC is pleased to announce that it has entered into an agreement for the sale of Costa Limited, one of the world’s leading coffee brands, to the Coca-Cola Company, for an enterprise value of GBP 3.9 billion. Transaction highlights:
- Sale of Costa for an enterprise value of GBP 3.9 billion, representing a multiple of 16.4x Costa FY18 Ebitda
- Recognises strategic value of Costa’s brand strength, multi-channel presence and international growth potential
- Substantial premium to the value that would have been created through the previously announced demerger given the Coca-Cola system’s global product, distribution and vending platform
- Transaction unanimously agreed by Whitbread Board to be in the best interests of shareholders
- Net cash proceeds expected to be approximately GBP 3.8 billion at completion, after adjusting for estimated transaction costs and separation costs
- A significant majority of net cash proceeds intended to be returned to shareholders
- Whitbread will also reduce financial indebtedness and make a contribution to the pension fund, which will both provide headroom for further expansion of Premier Inn in the UK and Germany
- The Transaction is conditional upon agreement by Whitbread’s shareholders and various other approvals, including anti-trust approvals, and is expected to complete in the first half of 2019
- Whitbread to focus on the attractive structural growth opportunities for its leading hotel business, Premier Inn, in the UK and Germany
Alison Brittain, Whitbread Chief Executive, commented:
«I am delighted that we have agreed the sale of Costa to Coca-Cola for GBP 3.9 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. The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders. Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn.
The sale of Costa to Coca-Cola is another successful landmark in the 276-year history of Whitbread. Whitbread acquired Costa in 1995, for GBP 19 million when it had only 39 shops and successfully grew the business to be the UK’s favourite and largest coffee shop company. In more recent years, we have been focused on building Costa into a leading multi-channel, international coffee brand. This has resulted in this unique strategic opportunity to combine the Costa brand with Coca-Cola’s global scale, product and distribution capabilities. This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas. As a result of this strategic sale our teams, pensioners, suppliers, shareholders and other stakeholders will all have the opportunity to share in the benefits.
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».
James Quincey, Coca-Cola President + CEO, commented:
«Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand 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. I’d like to welcome the team to Coca-Cola and look forward to working with them».
Background to and reasons for the Transaction
On 25 April 2018, Whitbread announced its intention to pursue the demerger of Costa in order to provide shareholders with investments in two distinct, focused and market-leading businesses. Whitbread committed to pursue the demerger as fast as appropriate and practical to optimise value for shareholders.
Following the announcement to demerge Costa, the Whitbread Board continued to evaluate all options in order to maximise value for shareholders. Subsequently, Coca-Cola approached Whitbread with a highly compelling offer to acquire Costa. The Whitbread Board unanimously agreed that the Transaction is in the best interests of shareholders and other stakeholders as a whole for the following reasons:
- the Transaction recognises the strategic value of Costa’s brand strength, multi-channel presence and international growth potential;
- the Transaction represents an enterprise valuation multiple of 16.4x Costa’s FY18 Ebitda;
- the valuation is significantly higher than is currently reflected for Costa in Whitbread’s market value;
- the Transaction provides a substantial premium to the value that would be created by Costa as a separately listed entity through the previously announced demerger plan, given CocaCola’s leading global product development, distribution, marketing and vending platform;
- the Transaction accelerates the realisation of value in cash; and
- the Transaction will enable enhanced focus and investment in Whitbread’s attractive growth opportunities available for Premier Inn in the UK and Germany.
Principal terms of the Transaction
At completion, Whitbread is expected to receive approximately GBP 3.8 billion of cash proceeds from the Transaction, after adjustment for estimated transaction costs and separation costs (the «Net Cash Proceeds»).
The Transaction is a Class 1 transaction for Whitbread under the Listing Rules and is therefore conditional upon the approval of shareholders and two anti-trust regulatory approvals, in the EU and China. Before completion, Whitbread also expects to reach agreement with other stakeholders, such as the pensions trustees, in relation to the extent of contributions to the pension deficit. Completion of the Transaction is expected during the first half of 2019.
As is usual in transactions of this nature, the transaction agreement contains obligations on both sides to obtain the required approvals, as well as customary warranties, indemnities, break fees and cost reimbursements.
Whitbread and Coca-Cola have also entered into a transitional services agreement, under which Whitbread has agreed to provide various services including IT, procurement and HR services to Coca-Cola for 12-24 months.
As part of the Transaction, Dominic Paul will remain as Costa Managing Director and will no longer be a member of the Whitbread Executive Committee.
Use of proceeds
The Whitbread Board intends to return a significant majority of the Net Cash Proceeds to shareholders, unless more value creating opportunities arise and subject to prevailing market conditions. Net Cash Proceeds will also be used to reduce the Group’s borrowings and the Group’s pension fund deficit. A reduction in the Group’s indebtedness will provide headroom for further expansion of Premier Inn in the UK and Germany. Discussions with pension trustees and other relevant stakeholders will be conducted and an update on the amount and method to return proceeds will be provided in due course.
Tax, other transaction costs and separation costs are estimated to be approximately GBP 100 million. A further update on separation activity and costs will be provided in due course.
Financial effects of the Transaction
As a result of the Transaction, the Group will change the way it accounts for Costa, including in the Group’s interim results for the half year to 31 August 2018, which will be published on 23 October 2018. Until completion occurs, Costa will be accounted for as an asset held for sale and presented in the Group’s accounts as a discontinued operation.
During the current and following financial years, Whitbread will incur restructuring costs relating to the separation of Costa as well as incremental costs as a result of separation, and redevelopment, of previously shared services. Whitbread will also benefit from cost efficiencies as it transitions over time to a simpler overall structure. Further guidance on separation activity and costs will be provided in due course.
Information on Costa
Costa is a leading international coffee brand and the UK’s favourite coffee shop, with over 2,400 coffee shops in the UK and over 1,400 stores in more than 30 international markets. Costa also operates the fast-growing self-serve business, Costa Express, with over 8,000 Costa Express selfserve machines in eight countries. Costa also operates an in-home distribution and wholesale coffee business with high potential.
Whitbread acquired Costa in 1995 when it owned 39 stores and has grown the business into the successful business it is today. As at 01 March 2018, the gross assets of Costa were GBP 547 million. Further financial information will be set out in the circular.
