Coca-Cola's $5.1 billion deal to buy UK coffee chain is approved by Whitbread shareholders 

  • Whitbread obtained shareholder approval for its proposed sale of its coffee chain Costa to Coca-Cola.
  • The deal was first announced in August, pushing shares up by 16 percent in one day.
  • Whitbread intends to return a significant majority of net cash proceeds from the deal to shareholders.
A barista places a coffee on to a serving tray in a Costa Coffee shop in London, U.K., on Wednesday, May 2, 2018. 
Chris Ratcliffe | Bloomberg | Getty Images
A barista places a coffee on to a serving tray in a Costa Coffee shop in London, U.K., on Wednesday, May 2, 2018. 

Whitbread obtained shareholder approval for its proposed sale of its coffee chain Costa to Coca-Cola for an enterprise value of £3.9 billion ($5.1 billion) at a general meeting held in London.

On Thursday morning, Whitbread announced that 99.27 percent of its shareholders voted to approve the sale.

This deal was previously announced on August 31 and was met with widespread investor support with shares closing more than 16 percent higher that day.

Whitbread had previously said the price reflects a "substantial premium to the value that would have been created through the previously announced demerger given the Coca-Cola system's global product distribution and vending platform."

In the lead up to its decision to sell the coffee business, the British hospitality company faced intense pressure from shareholders, led by activist investor Elliott Advisors. The hedge fund congratulated the board of Whitbread on the Costa transaction when it was initially announced. At the same time, the fund noted that it "look(ed) forward to continuing to engage with them to maximise the value of the remaining businesses."

Whitbread intends to return a significant majority of net cash proceeds from the deal to shareholders, as well as reduce financial indebtedness and make a contribution to the company pension fund. These measures are intended to provide headroom for further expansion of its Premier Inn hotel chain in the U.K. and Germany.

Whitbread joins a raft of other consumer companies engaging in deal-making in the beverage sector, in coffee, in particular, to bolster growth.

"There are aspects of the coffee market where there is growth including high-end brands, ready to drink brands, and the vending market," Richard Clarke, equity analyst at Bernstein, tod CNBC.

Big, traditional food and beverage companies are under pressure to adapt to changing consumer preferences, for example, health and wellness, natural ingredients and high-end niche brands.

In 2018, PepsiCo announced plans to buy Sodastream for $3.2 billion, Nestle struck a $7 billion licensing deal with Starbucks, Italian coffee maker Lavazza agreed to acquire Mars Drinks business for around $650 million, according to Reuters sources, and most recently, Italian coffee maker Illy signed a licensing agreement with JAB Holdings.

Analysts highlight that the presence of activists in the sector is a contributing factor as well. Even if companies do not have activists on their shareholder register, the threat of attracting one is leading companies to proactively search for growth.

Investors argue that the attractiveness of coffee is driven by the scarcity of growing categories in the beverage space, of which coffee is one. While parts of the coffee market are arguably close to saturation, there are several areas that offer significant growth potential.

Whitbread shares are up 16 percent since the announcement of the sale on August 31.