Coca-Cola has reportedly abandoned plans to sell Costa Coffee after private equity bidders fell short of its expectations. It marks another setback for the company during its ownership of the troubled British coffee chain. The U.S. soft drinks giant ended talks with remaining bidders in December, halting the months-long auction process, according to two people familiar with the matter.
Companies in advanced talks include Asda owner TDR Capital and Bain Capital Special Situations Fund, which owns brands such as Gail’s and Pizza Hut’s UK business, people familiar with the matter said.
Previously, it was reported that Coca-Cola has set a sales target price of about 2 billion pounds for Costa Coffee, which is roughly half of the 3.9 billion pounds it paid to acquire the UK's largest coffee chain from Whitbread, the parent company of Premier Inn Hotel Group (Premier Inn) in 2018.
People familiar with the matter revealed that if a deal with TDR Capital is reached, Coca-Cola will retain a minority stake in Costa Coffee. Apollo Global Management, Carlyle Group (KKR) and Centurium Capital, the parent company of Luckin Coffee, all participated in early negotiations, and the sale process was promoted by Lazard.
Coca-Cola's decision to end plans to sell Costa Coffee, which has more than 2,700 stores in the UK and Ireland, comes as chief operating officer Henrique Braun prepares to succeed James Quincey as chief executive in March. A person familiar with Coca-Cola's thinking said the company could revive plans to sell Costa Coffee in the medium term.
Quincey, who admitted to analysts in July last year that Costa Coffee "failed to deliver the expected results for Coca-Cola" will serve as executive chairman of the company after stepping down as CEO.
Under the operation of Coca-Cola, Costa Coffee has to compete with independent coffee shops with higher-end positioning on the one hand, and the impact of affordable coffee operators such as Greggs on the other. At the same time, consumer spending has always remained weak.
Financial documents submitted by British Companies House show that Costa Coffee's operating income in 2024 will be 1.2 billion pounds, but operating losses will more than double year-on-year to 13.5 million pounds. The company blamed its losses on low high street footfall and fierce competition from budget rivals.
Since then, the British coffee industry has been suffering from the dual pressures of rising coffee bean prices and increasing labor costs. In particular, the increase in employer national insurance contributions that took effect in April last year has further increased the burden on enterprises.
The failure of the planned sale may force Coca-Cola to write down the value of Costa Coffee's assets on its books.
At the same time, Costa Express, a subsidiary of Costa Coffee that operates the self-service coffee machine business, made an impairment of 51 million pounds on related assets due to its decision to discontinue "some prototype machines" last year.
Coca-Cola, Bain Capital and TDR Capital all declined to comment.