StockMarketWire.com - Whitbread said it had agreed to sell its Costa coffee chain to The Coca-Cola Company for an enterprise value of £3.9bn and would return 'a significant majority' of the proceeds to shareholders.

The deal marked a change of course for Whitbread, which had originally planned to separate Costa through a demerger.

Coca-Cola said Costa would give the US beverages giant new capabilities and expertise in coffee.

'Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,' Coca-Cola chief executive James Quincey said.

'Costa gives us access to this market through a strong coffee platform.'

The sale price represented a multiple of 16.4 times Costa's operating earnings in the 2018 financial year, Whitbread said.

Net cash proceeds were expected to be around £3.8bn at completion, after adjusting for estimated transaction and separation costs.

Apart from returning cash to shareholders, Whitbread said it would use the sale proceeds to reduce debt and make a contribution to its pension fund -- providing headroom for further expansion of its Premier Inn hotel chain in the UK and Germany.

The deal was conditional on Whitbread shareholder approval and various other nods, including anti-trust approvals, and was expected to complete in the first half of 2019.

'This transaction is great news for shareholders as it recognises the strategic value we have developed in the Costa brand and its international growth potential and accelerates the realisation of value for shareholders in cash,' Whitbread chief executive Alison Brittain said.

'The announcement today represents a substantial premium to the value that would have been created through the demerger of the business and we expect to return a significant majority of net proceeds to shareholders.'

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