Coca-Cola abandons plans to sell Costa Coffee - report

(Sharecast News) - Coca-Cola has reportedly abandoned plans to sell Costa Coffee after bids from private equity suitors fell short of its expectations. According to the Financial Times, citing people familiar with the matter, the US soft drinks giant ended talks with remaining bidders for Costa in December, calling a halt to an auction process lasting several months.

Firms in the latter rounds of negotiations included Asda owner TDR Capital and Bain Capital's special situations fund, owner of the bakery chain Gail's and Pizza Express, sources told the FT.

The FT previously reported that Coke had been seeking about £2bn for Costa, roughly half the £3.9bn it paid to acquire the UK's largest coffee shop chain from Premier Inn owner Whitbread in 2018.

Talks over a deal with TDR would have seen Coke retain a minority stake in Costa. Private equity firms Apollo, KKR and Centurium Capital, owner of China's Luckin Coffee chain, were involved at earlier stages of the process, which was handled by Lazard, the FT said.

The decision to end efforts to find a buyer for Costa comes as Coke's chief operating officer Henrique Braun prepares to replace James Quincey as chief executive in March.

One person familiar with Coke's thinking told the FT the company could still revive plans to sell Costa in the medium term.

Dan Coatsworth, head of markets at AJ Bell, said: "How the mighty have fallen. Once a dominant name on the high street, Costa Coffee has gone off the boil, and its sale process has gone down the drain. Coca-Cola has been trying to sell the business, but it looks like offers have only been lukewarm.

"Reports suggest the sale has been scrapped after failing to get the right price. This is not a good look given the speculated sale price was already half what Coca-Cola paid in 2018. The coffee chain hasn't worked for Coca-Cola, yet the parent company will be reluctant to sell it for beans.

"We're in an era where companies are focusing on what they do best, and for Coca-Cola that means fizzy drinks rather than lattes.

"Higher staffing costs and a spike in raw material prices have put pressure on Costa. At the same time, competition has heated up, and consumers have become wary about spending money on casual items like a coffee.

"It always felt like Costa was low down the priority list for Coca-Cola, left to go cold like an undrunk cappuccino. It will now have to give the brand more love if it is to stand any chance of getting a more reasonable takeover offer."