Coca-Cola Company (NYSE:KO) is reportedly preparing to sell the Costa Coffee chain in a deal that would be struck at a price far below the $4.9 billion price tag that the business was acquired in 2018. Sources indicate Costa Coffee could be unloaded by Coca-Cola (NYSE:KO) for about $2.7 billion.
The Atlanta-based beverage giant is said to be working with investment bank Lazard to explore options following a trend of underperforming sales at Costa and spiking commodity coffee prices. Reports of the sale process followed about a month after Coca-Cola (NYSE:KO) CEO James Quincey said the investment in Costa Coffee is not where the company wanted it to be from an investment hypothesis point of view. “I mean the business is still a good business, but it’s not quite delivered on the different verticals of growth that we were hoping to accelerate much quicker, the ready-to-drink coffee, the express and the at-home and therefore, the business remains more weighted towards stores,” he updated on the beverage giant’s second quarter earnings call.
Costa Coffee is the UK’s largest and the world’s second-largest coffeehouse chain behind Starbucks (SBUX). The chain is recognized for its premium coffee, comfortable in-store experience, and diverse product offerings, including handcrafted drinks, pastries, and ready-to-drink retail products. Founded in London in 1971 by the Costa brothers, it started as a coffee roastery and evolved into a global brand with over 4,000 stores across 31 countries and a wider reach through Costa Express vending machines and retail channels.
Evercore ISI analyst Robert Ottenstein noted that the reported sale price of Costa Coffee would represent slightly under 1% of Coca-Cola’s (KO) total market cap. The firm believes Costa has not performed up to Coca-Cola’s (KO) standards based on quotes from management last month.