Whitbread has agreed to sell Costa Coffee to Coca-Cola for £3.9bn, a stock market update revealed this morning.

The enterprise sale value represents a multiple of 16.4x Costa FY18 EBITDA.

Whitbread said the deal recognised the strategic value of Costa’s brand strength, multi-channel presence and international growth potential – and was a substantial premium to the value that would have been created through the previously announced demerger, given Coca-Cola’s global product, distribution and vending platform

The transaction was unanimously agreed by Whitbread board to be in the best interests of shareholders

Net cash proceeds are expected to be approximately £3.8bn at completion, after adjusting for estimated transaction costs and separation costs – with a significant majority of net cash proceeds to be returned to shareholders. 

Alison Brittain, Whitbread Chief Executive, said: “I am delighted that we have agreed the sale of Costa to Coca-Cola for £3.9bn. 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. The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders.”

James Quincey, Coca-Cola president and chief executive, 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. I’d like to welcome the team to Coca-Cola and look forward to working with them.”

Whitbread acquired Costa in 1995, for £19m when it had 39 shops and grew the business to be the UK’s largest coffee shop company.

In more recent years, the focus has been on growing Costa into a leading multi-channel, international coffee brand.

As part of Coca-Cola’s there is expected to be new product development, continued growth in the UK and more rapid expansion overseas for Costa.

Whitbread will reduce financial indebtedness and make a contribution to the pension fund, which will both provide headroom for further expansion of Premier Inn in the UK and Germany

The Transaction is conditional upon agreement by Whitbread’s shareholders and various other approvals, including anti-trust approvals, and is expected to complete in the first half of 2019.