Whitbread shares rocketed on Friday as investors lined up for a windfall from the shock £3.9 billion sale of coffee chain Costa to US drinks giant Coca-Cola.
The UK consumer giant, which also owns hotel chain Premier Inn, stunned the City by offloading Costa to Coke. Shares surged 16% today to the highest level in three years with Costa’s price tag £1 billion more than expected.
Whitbread will hand back most of the money to investors, with analysts expecting between £2.5 billion and £3 billion to be returned.
The rest will pay down the pension scheme deficit and cut debt.
Whitbread chief executive Alison Brittain said: “It’s an all round fantastic deal for all stakeholders.”
The FTSE 100 giant unveiled plans to spin-off the chain in April after coming under pressure from activist shareholders Elliott and Sachem Head.
Costa had originally been valued at £2.9 billion and was due to be demerged into a standalone group by the middle of 2020.
Costa is unlikely to attract another bidder after Whitbread ruled out selling the firm to private equity groups.
“We have been very clear we were not interested in a sale other than to someone who had a strategic rationale and therefore would be able to create signficantly more value than Costa on its own,” said Brittain, who added Elliott had no role in the sale.
For New York-listed Coca-Cola the takeover gives the company an instant number two position behind Starbucks in the lucrative global coffee market.
It plans to further build out the Costa franchise, which has a presence in 30 countries globally, in places like China. Brittain said Coke had run the rule over Costa before the demerger plans were announced after Whitbread took sole control of a franchise in China. “When we bought out China last year that made them sit up and take notice,” she said.
Rothschild advised Coca-Cola while Goldman Sachs’ Anthony Gutman led the advice for Whitbread.
The price tag is around 16.4 times Costa’s earnings for 2018, higher than the 14.4 times value rival Starbucks trades at. “They’ve done very well (on the price). Clearly Coke’s a strategic buyer and will have grand plans for it,” said one top 20 shareholder.