UK’s Costa Coffee is set to be sold to American giant Coca-Cola in an astonishing £3.9 billion deal.
Shares soared 17% in early trade, catapulting the coffee chain’s parent company Whitbread to the top of the FTSE 100.
The UK-based firm bought Costa Coffee for £19 million in 1995.
This morning they announced the sale to the US giant for close to £4 billion – 205 times its original price.
Whitbread said they plan to now focus on their Premier Inn hotels business in the UK and Germany.
In return, Coca Cola said the purchase allowed them to get a foot in the door of the coffee market – an area that had previously eluded them.
Neil Wilson, chief market analyst at markets.com said: ‘Clearly Coca-Cola sniffed an opportunity to gain an attractive brand with a fast-growing global presence.
‘It’s a pretty good return too on the £19 million Whitbread paid for the coffee chain over 20 years ago.’
The deal comes hot on the heels of the £1.5 billion takeover of Pret A Manger earlier this year by a German firm.
Whitbread bought Costa for £19 million from founders Sergio and Bruno Costa when it had only 39 shops.
It now operates 2,400 stores in over 30 countries.
Whitbread came under pressure from investors earlier this year to separate Costa from its hotels business after the coffee firm suffered a decline in profits.
This morning they said the sale was ‘in the best interests of shareholders’ who will receive a significant majority of the cash proceeds.
The growth of Costa Coffee
Costa has grown from a small company founded in London 47 years ago to the UK’s largest coffee chain.
The brand was launched by Italian brothers Sergio and Bruno Costa with a single store in Vauxhall Bridge Road, Victoria, in 1971.
The business was sold to Whitbread for £19 million in 1995, when it had only 39 shops.
Costa grew to become the UK’s largest chain, with 40% of the UK coffee shop market.
It has more than 1,500 branches on high streets, garage forecourts and motorway service stations and a further 900 overseas.
These include more than 300 outlets in 28 cities in China and a branch in Phnom Penh, Cambodia.
Worldwide sales hit £1 billion in 2013, with a target of £2.5 billion in 2020.
Sales at Costa have been affected by Britain’s high street woes and fell by 2% in the UK in the first quarter of this year.
Other money will also be used to pay down debt and boost the pension fund.
Chief executive Alison Brittain said: ‘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.
‘This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.’
Whitbread shares jumped 17% trading at 4,710.00 pence per share in response to the news.
Coca-Cola boss James Quincey said: ‘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.’
At the end of May, Pret A Manger was sold by Bridgepoint for £1.5 billion to a company controlled by JAB, the investment vehicle of Germany’s wealthy Reimann family.
All 12,000 staff there are expected to get a £1,000 bonus when the sale is finally completed.