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Coca-Cola Co has agreed to buy the United Kingdom chain Costa Coffee for £3.9 billion ($7 billion), stepping into a battle with Nestle and Starbucks Corp as it gains a global brand in hot drinks. Costa is Britain's biggest coffee company with over 2,400 coffee shops in the United Kingdom and another 1,400 in more than 30 countries.

Costa Coffee, Britain's biggest coffee shop chain, is being bought by Coca-Cola in a £3.9bn deal.

Joining the Coca-Cola portfolio, Costa is a leading coffee brand first founded in London in 1971 that has since grown to include almost 4,000 retail outlets, a coffee vending operation, roastery, and home-brewed coffee formats.

James Quincey, Coca-Cola President & CEO, said Friday that Costa will give the company "new capabilities and expertise in coffee".

After missing out on the heady growth phase of coffee shops, Coca-Cola is entering when the market in countries like the United Kingdom and the U.S.is crowded.

Costa owner Whitbread, which also owns the Premier Inn hotel chain, had been planning to demerge Costa but said the Coca-Cola deal offered a far higher price.

A significant majority of net cash proceeds meant to be returned to shareholders, Whitbread added.

She said the money from the sale would be used to expand the Premier Inn chain, return some cash to shareholders, pay down debt and boost the pension fund.

Whitbread shares soared the most in 19 years as analysts said the business fetched a surprisingly high price.

Whitbread said in April that it would divest Costa, after pressure from activist investors who said the business should be separate from its hotel operations.

Shares in Whibread surged nearly 20% on the news, adding more than £1bn to the group's stock market value, as analysts said the price was substantially higher than expected. Costa is already the biggest coffee chain in the United Kingdom, and under Coca-Cola's reign, it could be set to get even bigger.

Now owned by parent company Whitbread, the Costa chain is about to be sold to Coca-Cola.

"On the other, Costa has always been the jewel in Whitbread's crown and some will be sad to see it go at any price, especially given the growth potential in China and elsewhere". The move will also help it to expand its Premier Inn chain in the United Kingdom and Germany.


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