Coca-Cola (KO) Strikes $1.3B Deal to Dump Costa Coffee Chain to Chinese Private Equity Titan

Coca-Cola shakes up its portfolio—again. The beverage giant is offloading its Costa Coffee chain in a blockbuster $1.3B deal to a Chinese private equity heavyweight. Here's the frothy details.

Why now? KO's been pruning non-core assets since acquiring Costa in 2019 for $4.9B. This fire-sale price suggests the 'synergies' never percolated. Classic corporate flip.

The buyer? A shadowy PE firm with deep pockets and deeper political ties. Because nothing says 'strategic pivot' like selling to the ultimate bagholder.

Wall Street's take? 'Brilliant capital reallocation'—translation: they overpaid last time and need to cover their tracks. Meanwhile, crypto traders shrug as another legacy firm plays hot potato with physical assets.

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Luckin Link

Reports in the Chinese media suggest that Centurium Capital, which is a major shareholder of Starbuck’s (SBUX) challenger Luckin Coffee (LKNCY), was evaluating a potential bid for the UK-based group.

The specific structure of the potential deal has yet to be determined, Chinese reports said, and it remains unclear whether Centurium WOULD submit a bid independently or through Luckin Coffee.

According to Chinese sources discussions are believed to be at an early stage and it is uncertain whether a formal acquisition proposal will be made.

The potential sale has reportedly drawn interest from several buyout firms and strategic investors, with Costa Coffee being valued at around $1.3bn.

Starbucks Pressure

A deal would mark Centurium’s first major investment in Europe and potentially expand Luckin’s footprint into the U.K. That would bring more competition for Starbucks after Luckin and other domestic brands put its sales under pressure in China.

Indeed, Luckin Coffee now runs more shops in China than Starbucks and has won customers through lower prices and frequent discounts. It could carry out similar moves in the U.K where Costa Coffee has nearly 3,000 stores.

Coca-Cola acquired Costa Coffee in 2019 for £3.9 billion as it sough to expand into a wider range of beverages. However, revenues have remained relatively static since then – see above.

Is KO a Good Stock to Buy Now?

On TipRanks, KO has a Strong Buy consensus based on 14 Buy and 1 Hold ratings. Its highest price target is $85. KO stock’s consensus price target is $79.08, implying a 10.69% upside.