What's going on?
On Friday, Coca-Cola announced it’s buying Costa Coffee – a British coffee chain not dissimilar to Starbucks – from its parent company, hotel, pub and restaurant owner Whitbread for $5 billion.
What does this mean?
Costa’s got a footprint to rival the global coffee brands – it’s got more stores in Europe than Starbucks! (Tweet this.) This purchase will allow Coca-Cola to make a big, caffeinated splash in the coffee market, following in the footsteps of JAB’s purchase of coffee and sandwich chain Pret A Manger in May.
Falling consumption of sugary drinks is hitting Coke’s hallmark products, as consumers look to healthier alternatives (last year, soda consumption fell to a 32-year low, according to Beverage Digest). The company’s growing in other, non-fizzy areas like coffee – selling java in Japan, Australia and Vietnam since last year.
Why should I care?
For markets: Coffee bringing the Benjamins.
Shares of Costa’s owner, Whitbread, bubbled up by 15%. Last year, Costa contributed 26% to Whitbread’s overall profit – and now it’s being bought for $5 billion, which is more than half the total value of Whitbread (about $8.5 billion before the announcement). This was probably a pleasant surprise for investors, who bought the stock. The deal pits Coke against Nestlé – which owns Blue Bottle Coffee and signed a $7 billion deal to distribute Starbucks’ coffees in grocery stores.
The bigger picture: A win for activist investors.
The deal’s a win for the activist investors who’d bought a stake in Whitbread, pushing it to split up its coffee and hotels businesses. Though the breakup didn’t happen exactly as planned, they’ve mostly had their way and likely made a profit. But it doesn’t always work out that way for activists: billionaire activist investor Carl Icahn hoped to stop the $54 billion takeover of Express Scripts by Cigna, but was outvoted by other shareholders who supported the deal.