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Coca-Cola to buy Costa coffee for $7 billion

Soft drinks giant Coca-Cola has agreed to buy the Costa coffee chain from owner Whitbread in a deal worth 3.9 billion pounds sterling ($7 billion).

The British hospitality group said earlier this year that it would split Costa and list it as a separate entity, following pressure from activist investor Elliott.

But on Friday the company 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 and boost the pension fund.

“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,” Whitbread chief executive Alison Brittain said.

“This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.”

Whitbread acquired Costa from founders Sergio and Bruno Costa for 19 million pounds sterling in 1995, when the chain had only 39 shops. It now has more than 2400 outlets and is embarking on overseas expansion.

Coca-Cola boss James Quincey said the acquisition will give the soft drinks giant “new capabilities and expertise in coffee”, while the US company could “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,” he said.

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