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USA – The Coca-Cola Company has announced that it has reached a definitive agreement to acquire Costa Limited, valued at US$5.1 billion, giving it a strong coffee platform across parts of Europe, Asia Pacific, the Middle East and Africa, with the opportunity for additional expansion.

Costa Limited, from parent company Whitbread PLC, was founded in London in 1971 and has grown to become a major coffee brand across the world.

According to the company, Costa operations include a leading brand, nearly 4,000 retail outlets with highly trained baristas, a coffee vending operation, for-home coffee formats and Costa’s state-of-the-art roastery.

The company added that upon the closing of the deal, The Coca-Cola Company will acquire all issued and outstanding shares of Costa Limited, a wholly owned subsidiary of Whitbread.

This subsidiary contains all of the existing operating businesses of Costa.

Whitbread will be seeking shareholder approval for the transaction, which is expected to take place by mid-October.

The deal is subject to customary closing conditions, including antitrust approvals in the European Union and China. It is expected to close in the first half of 2019.

Coca-Cola expects the transaction to be slightly accretive in the first full year, not taking into account any impact from purchase accounting.

For the fiscal year 2018 (ending March 1, 2018), Costa generated revenue and EBITDA of US$1.7 billion in revenue and US$312 million in EBITDA.

For Coca-Cola, the expected acquisition adds a scalable coffee platform with critical know-how and expertise in a fast-growing, on-trend category.

Costa ranks as the leading coffee company in the United Kingdom and has a growing footprint in China, among other markets.

Costa has a solid presence with Costa Express, which offers barista-quality coffee in a variety of on-the-go locations, including gas stations, movie theaters and travel hubs.

“Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola President and CEO James Quincey.

“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.”

Coffee is a significant and growing segment of the global beverage business. Worldwide, coffee remains a largely fragmented market, and no single company operates across all formats on a global basis.

“The Costa team and I are extremely excited to be joining The Coca-Cola Company,” said Costa Managing Director Dominic Paul.

“Costa is a fantastic business with committed and passionate associates, a great track record and enormous global potential. Being part of the Coca-Cola system will enable us to grow the business farther and faster.

I would like to say a huge thank you to our customers and to everyone in the Costa team who have helped us build the business to this position, and I look forward to the next exciting chapter in Costa’s vision of Inspiring the World to Love Great Coffee.”

According to Reuters, Costa is the world’s second largest coffee chain, and is looking to triple its presence in China, where it’s second to Starbucks.

It added that according to consumer analysts Kantar Worldpanel, the out-of-home coffee market is worth US$7.35 billion a year in the UK alone.

The Guardian also said that coffee is proving hot business with Coke’s deal coming after Swiss food giant Nestlé started a US$7.15bn deal to license Starbucks packaged coffees and teas around the world.

“Coca-Cola is one of the few companies in the world that could justify the [Costa Coffee] valuation,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

“Its global reach should turbocharge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn’t have a killer brand.”

FoodingredientsFirst reported that coffee is trending among Millennial and Generation Z consumers and that more ingredients are made in ways that are more convenient to consume and moving from the coffeehouse to the home.

The coffee sector is undergoing somewhat of a renaissance, with a focus on upscaling premium coffee experiences or remaking them in the comfort of consumer homes and several major acquisitions taking place last year among key manufacturers, including Nestlé and Unilever.

The focus seems to be on upscaling premium coffees, exploiting the growing market for cold-brewed coffee and the sector has experienced dramatic growth in recent years.