In a pivotal corporate maneuver, Coca-Cola is intensifying talks with private equity firm TDR Capital to salvage the proposed sale of its coffee chain, Costa Coffee. This comes after negotiations reportedly stalled over pricing issues. TDR Capital, which co-owns the EG Group, was designated as Coca-Cola's preferred bidder following a recent board meeting held in New York.
The deal in question would allow Coca-Cola to retain a minority stake in Costa Coffee, with the possibility of adjusting the size of this holding to reconcile differences in valuation. Coca-Cola is targeting a sale price of approximately £2 billion, a steep reduction from the £3.9 billion it paid to acquire Costa from Whitbread in 2018. This decision comes in the wake of Costa Coffee's financial struggles, which included a £13.8 million loss on revenues of £1.2 billion in 2023, attributed to rising operational costs and stiff competition from both independent coffee shops and mass-market operators like Greggs.
TDR Capital's acquisition ambitions encompass both Costa's UK and international operations, with the notable exclusion of China. The bidding landscape has been competitive, with other private equity firms, including Bain Capital’s special situations unit and Centurium Capital, also vying for the acquisition. However, firms such as Apollo and KKR have withdrawn from the bidding process.
Coca-Cola is expected to make a decision on whether to proceed with the sale process by next week, indicating a sense of urgency in resolving the ongoing valuation disputes. The implications of this transaction are significant, as the outcome will impact shareholders, employees, and the broader market dynamics of the coffee retail sector.
From a strategic standpoint, the sale could allow Coca-Cola to reallocate resources and mitigate losses from Costa Coffee while still maintaining a foothold in the growing coffee market. However, the deal will require careful navigation of regulatory approvals, particularly concerning antitrust considerations, as Coca-Cola seeks to finalize the transaction with TDR Capital.
As the situation develops, stakeholders will be closely monitoring the negotiations, which could reshape Coca-Cola's strategic positioning within the competitive coffee landscape.