Coca-Cola brews something new with Costa

The Coca-Cola Company (KO) agreed to acquire Costa, a coffee shop chain owned by UK-based Whitbread Plc, for $5.1 billion. Costa, which is one of Starbucks’ chief rivals, has a presence in more than 30 countries and achieved $1.6 billion in revenues during its recently-ended fiscal year.

The deal, which is expected to close in the first half of 2019, will give Coca-Cola a sizeable international store presence through Costa’s 4,000 stores. Whitbread had plans to spin off Costa and Coca-Cola’s price is said to offer more value than what the British company would have gained if Costa was turned into a standalone entity.

Coca-Cola and Costa both have an extensive presence across various markets in their respective fields, and this deal is expected to benefit both companies regarding expansion and product diversification. The acquisition is anticipated to open up new growth and expansion opportunities for Coca-Cola across Europe, Asia, and the Middle East. Costa has a notable presence in China alongside Starbucks, which will now probably face tougher competition as a result of this combination.

The acquisition is anticipated to open up new growth and expansion opportunities for Coca-Cola across Europe, Asia, and the Middle East

As customer preferences change, prominent Cola companies are modifying their strategy and shifting to various other products aside from sugary drinks, as can be seen from Pepsi’s (PEP) recent acquisition of sparkling water company SodaStream International (SODA) for $3.2 billion.

Coffee is one such product which is seeing good sales, and the Costa deal provides growth opportunities to Coca-Cola, which is relatively new to coffee. Recently, Nestle and Starbucks (SBUX) entered into a distribution partnership for over $7 billion.

Whitbread shares rose close to 20% during early trading hours in London after news of the deal broke.