Coca-Cola to buy Costa Coffee chain from Whitbread for £3.9bn
Whitbread said a sale of the business is now "in the best interests of shareholders".
Proceeds of the deal will be used to pay down debt, boost the pension fund while a significant majority of net cash proceeds will go to shareholders.
The company said the sale of the coffee chain will allow it to focus on its Premier Inn hotels business.
Chief executive Alison Brittain said: "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.
"This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas."
Whitbread bought Costa, which is now the UK's biggest coffee chain, for just £19m in 1995. It's the second biggest coffee shop in the world, with a 40% market majority, second to US rival Starbucks.
The brand was first launched by Italian brothers Sergio and Bruno Costa with a single store in Vauxhall Bridge Road, London.
It's since expanded from just 39 branches to more than 2,400 UK outlets across high streets and concessions as well as 31 shops overseas - while Costa Express has 8,237 vending machines worldwide.
For Coca-Cola, the transaction represents a leap into the global coffee market, where it has little presence, allowing it to diversify away from fizzy and sugary drinks, which have declined in popularity among increasingly health-conscious consumers.
Coca-Cola boss James Quincey 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,” said James Quincey, president and chief executive of Coca-Cola. “Costa gives us access to this market through a strong coffee platform.”
Nicholas Hyett, equity analyst at Hargreaves Lansdown, described the deal as "a bitter-sweet moment for Whitbread investors".
Whitbread also owns restaurants Beefeater and Brewers Fayre. Over the years, it has held stakes in household brands such as TGI Fridays, Pizza Hut and Marriott Hotels.
"Clearly Coca-Cola sniffed an opportunity to gain an attractive brand with a fast-growing global presence. It’s a pretty good return too on the £19m Whitbread paid for the coffee chain over 20 years ago," explained Wilson.
The investment comes amid a turbulent year for the high street with dozens of retailers seeking company voluntary arrangements, and even buyers to manage debt and plunging profits.
Coffee has been one of the frothiest markets for mergers and acquisitions over the past year, as competition between Swiss group Nestlé and JAB Holdings — the private investment group that manages the wealth of Germany’s billionaire Reimann family — has heated up.
Nestlé’s deals have included taking a majority stake in hipster roastery Blue Bottle and acquiring rights to sell Starbucks products, while JAB this year struck a deal to combine its Keurig Green Mountain coffee business with soft drinks producer Dr Pepper Snapple.
Whitbread had long resisted calls to sell Costa, but responded favourably to Coca-Cola’s approach in June, after accepting the US company would develop Costa faster than would have been possible as a standalone company.
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