UK Company Histories

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How Whitbread turned Costa's £3.9bn sale into a hotel-focused business

Whitbread bought Costa for £19 million in 1995 when it had 39 shops. Its 2019 sale to Coca-Cola generated £3.8 billion in net cash proceeds and left Whitbread to expand Premier Inn in Britain and Germany.

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UK Company Histories Editorial Team

Costa's ownership and Whitbread's cash decisionsCosta transaction and Whitbread capital allocation milestones
  1. 1995
    Whitbread buys Costa

    £19 million, 39 shops Source 1

  2. April 2018
    Whitbread announces planned separation

    Proposed demerger of Costa Source 1

  3. 31 August 2018
    Coca-Cola sale agreed

    £3.9 billion enterprise value, 16.4 times Costa FY18 EBITDA Source 1

  4. 3 January 2019
    Sale completes

    £3.8 billion net cash proceeds after costs Source 2

  5. 30 April 2019
    Preliminary results set out intended return

    Up to £2.5 billion in net cash proceeds to shareholders Source 2

  6. 30 April 2019
    Tender proposal described

    Up to £2 billion, subject to shareholder approval Source 2

The 2018 demerger plan was followed by a cash sale, which gave Whitbread a separate capital allocation decision.

Source 1 Source 2

The two routes sent value to owners differently

The planned demerger would have created two stand-alone investments for shareholders. Under the deal Whitbread announced in August, Coca-Cola bought the coffee company and Whitbread received proceeds it could allocate among competing uses. Source 1

Enterprise value and spendable cash

The £3.9 billion price was the enterprise value used in the transaction announcement. Whitbread reported £3.8 billion in net cash proceeds after separation and transaction costs including tax. The net figure is the relevant starting point for tracking the seller's uses of cash. Source 1 Source 2

A capital return had its own approvals

Whitbread's April 2019 results set out an intended return of up to £2.5 billion and identified a tender offer of up to £2 billion subject to shareholder approval. Those amounts described the proposed programme and the proposed tender within it. They cannot be added together. Source 2

Why keep the hotel balance sheet in view

Whitbread said the transaction would allow it to reduce indebtedness and contribute to its pension fund. It also identified Premier Inn growth in Britain and Germany as an intended use of the headroom. The continuing business had a different asset and investment profile from the former group. Source 1 Source 2

Sources

Open the data and source notes