Headlines! Coca-Cola will buy Costa for US $5.1 billion, and a final agreement has been reached.

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On Aug. 31, global beverage giant Coca-Cola Company announced a final agreement with British coffee chain Costa to buy Costa from Costa parent company Whitbread PLC for $5.1 billion.

Coca-Cola said in the announcement that it will buy Costa Coffee from Whitbread, which will provide Coca-Cola with a strong coffee sales platform in Europe, Asia-Pacific, the Middle East and Africa, and an opportunity to further expand.

Upon completion of the acquisition, Costa will also provide Coca-Cola with strong expertise throughout the coffee supply chain, including procurement, automated selling and distribution, which complements Coca-Cola's existing capabilities.

Coca-Cola President and CEO James Quincey said:

"Hot drinks are one of the few areas where Coca-Cola does not have a global brand, and Costa's powerful coffee platform allows us to enter this market."

According to public sources, Whitbread bought Costa for £19 million in 1995, when the latter had only 39 branches, while Costa is now a famous coffee company in the UK, with nearly 4000 stores, 8237 coffee vending machines, trained baristas and state-of-the-art coffee roasters around the world.

As of March 1, 2018, Costa generated income of 1.3 billion pounds ($1.7 billion) and profit before tax, interest, depreciation and amortization of 238 million pounds ($312 million).

The price of this transaction is also 205 times the purchase price of Whitbread 23 years ago.

CEO Alison Brittain of Whitbread said

"this deal is good news for shareholders because it highlights the strategic value of our development in the Costa brand and our international growth potential."

After the announcement, Coca-Cola announced that after the completion of the acquisition, Coca-Cola will own all the shares issued by Costa. Notably, the deal, which is subject to antitrust approval from the EU and China, is expected to close in the first half of 2019, with Whitbread up 10 per cent in pre-market trading by brokers.

Strategic ambition behind Coca-Cola

Coca-Cola's 2017 financial report showed that Coca-Cola's annual net income was $35.41 billion, down 15% from a year earlier, and operating profit was $7.501 billion, down 13% from a year earlier. Net profit belonging to shareholders of listed companies was $1.248 billion, down 81% from a year earlier. All financial indicators fell across the board.

The decline of the "Coke era"

In April 2017, Coca-Cola said that in order to streamline the company's structure, 1200 employees would be laid off from mid-2017, and the layoffs would continue until 2018. With regard to the decline in performance, Coca-Cola explained that it had made many changes in its business in 2016, seriously affecting its performance by selling its bottling business in North America and around the world.

But in fact, the main reason for the continuous decline in Coca-Cola's performance is that with the upgrading of consumption level, people pay more and more attention to a healthy diet, resulting in carbonated beverages becoming less and less favored by consumers, and the contraction of the Coke market continues to intensify.

Obviously, carbonated drinks have become synonymous with "unhealthy", and Coca-Cola's carbonated drink sales have declined for 12 years in a row as of 2017. The decline in performance has led Coca-Cola to launch a new round of marketing model.

Coca-Cola, in addition to the diversification of its products, how to extend its recognition of new products through interaction with consumers may be a further consideration for this carbonated beverage giant.

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