Coca-Cola's deal with Costa threatens not only Starbucks' store-based operations but also its retail arm, which sells branded iced coffees and coffee drinks in convenience and grocery stores around the world.
"Costa is a fantastic business with committed and passionate associates, a great track record and enormous global potential", said Dominic Paul, managing director at Costa, in a statement.
The company also owns Brewer's Fayre, Beefeater and Table Table restaurants, as well as the budget hotel chain Premier Inn.
"On the one hand £3.9 billion is an undeniably rich valuation and likely far better than Costa could achieve as an independently listed company, valuing its earnings higher than those of the mighty Starbucks".
Earlier in August, Coca-Cola's arch-rival PepsiCo struck a deal to buy Israeli company SodaStream for $3.2 billion - in a pitch to consumers concerned about mounting waste from soda cans and plastics in landfills worldwide.
Coca-Cola said it was open to additional expansion into new markets and would consider new product formats following the acquisition of Costa.
Founded 276 years ago as a brewery by Samuel Whitbread and Godfrey and Thomas Shewell, Whitbread grew into a sprawling group that had interests spanning pubs, fitness clubs, casual dining chains and Costa, which it bought for £19-million in 1995.
After announcing in April its intention to pursue the demerger of Costa, Coca- Cola got in touch with what Whitbread said was a "highly compelling" offer.
"We were not interested in a sale other than to somebody who had a strategic rationale and therefore would be able to create significantly more value than Costa could create on its own". "I would imagine they would be as delighted and surprised as anybody else this morning", she told reporters.
Coffee is growing by 6 per cent a year, making it one of the fastest-growing beverage categories in the world, said James Quincey, Coca-Cola president & CEO. "Starbucks must be furious as there is no doubt that Coke will launch Costa Coffee brands to compete on the retail shelves, because Starbucks dominates that grab-and-go coffee market".
Costa Coffee entered India in 2005 through RJ Corp.
Bankers from Rothschild advised Coke, while Whitbread used Goldman Sachs, Morgan Stanley and Deutsche Bank.
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