Coca-Cola (KO) is facing a potential deal disaster as its planned sale of Costa Coffee threatens to fall apart over pricing disputes with private equity firm TDR Capital.
The Deal's Rocky Road
TDR Capital, the outfit behind UK supermarket chain Asda, was originally picked as the preferred bidder for Costa following a board meeting in New York. But that warm handshake moment has cooled considerably. The two sides are now at an impasse over valuation, and Coca-Cola has given itself until next week to decide whether to push forward or pull the plug entirely, according to The Financial Times.
Here's the uncomfortable math: Coca-Cola was hoping to pocket around $2.5 billion from this sale. That's already a painful discount considering the company shelled out roughly $5 billion to acquire Costa from Whitbread back in 2018. Losing half your investment in six years isn't exactly the kind of return shareholders celebrate.
What's On The Table
The current deal structure calls for Coca-Cola to retain a minority stake in Costa. One possible lifeline? Increasing the size of that stake might help bridge the gap and salvage the transaction.
TDR's interest extends to Costa's UK and international operations, but notably excludes the China business. The private equity firm, which co-owns EG Group, initially competed against other bidders including Bain Capital, Centurium Capital, Apollo, and KKR. The latter two have already dropped out of the race.
Why Costa Became A Problem
Costa hasn't exactly been a crown jewel in Coca-Cola's portfolio. The coffee chain has been getting squeezed by independent operators and mass-market competitors while costs keep climbing. In 2023, Costa posted an annual loss of £13.8 million on revenues of £1.2 billion, officially operating in the red.
If this sale collapses, Coca-Cola loses a chance to recover a meaningful chunk of its investment, while Costa continues fighting in a brutal competitive landscape without the capital infusion it desperately needs.
