Coca-Cola Last Ditch Attempt To Offload Costa

Price dispute threatens collapse of deal with preferred bidder TDR Capital

Coca-Cola is holding eleventh-hour talks with private equity firm TDR Capital in an effort to rescue the proposed sale of Costa Coffee, as disagreements over valuation push the process to the brink of collapse. The soft drinks group is expected to decide next week whether to press ahead with the transaction or abandon the sale entirely, according to people familiar with the matter.

TDR, the owner of Asda, was selected as Coca-Cola’s preferred bidder earlier this week following a board meeting in New York. However, negotiations with Coca-Cola and its advisers at Lazard have stalled after the two sides failed to bridge a gap on price. One person close to the talks said the current discussions were effectively a final attempt to keep the deal alive.

Minority stake seen as a compromise

The structure under discussion would see Coca-Cola retain a minority stake in Costa, a move designed to reduce the upfront price and give the seller continued exposure should the business recover. People familiar with the talks said the size of that retained stake could still be adjusted in Coca-Cola’s favour if it helped secure an agreement.

Coca-Cola had been seeking a valuation of around £2bn for Costa, the Financial Times previously reported. That figure already represents a steep markdown from the £3.9bn the US group paid Whitbread for the chain in 2018, in what was then billed as a bold expansion into the global hot drinks market.

Whether even the reduced valuation is realistic has become the central question hanging over the auction.

A difficult investment for Coca-Cola

Costa has struggled to live up to expectations since the acquisition. Competition in the UK coffee market has intensified, with independent operators, premium boutique chains, and value-focused rivals such as Greggs all squeezing margins. At the same time, consumer spending has been under pressure, particularly on discretionary items such as branded coffee.

Costs have risen sharply. Coffee bean prices, energy bills, rents, and staff wages have all increased, leaving Costa with limited room to protect profitability. According to its most recently available accounts at Companies House, Costa reported a loss of £13.8mn in 2023 on revenues of £1.2bn.

For Coca-Cola, which built its global success on concentrate-based soft drinks with high margins, the operational complexity and cost base of a large retail chain has proved a poor fit. Chief executive James Quincey acknowledged as much earlier this year, telling analysts in July that Costa had “not delivered”.

What TDR wants from the deal

TDR is understood to be pursuing Costa’s UK and international operations, excluding the business in China. The China arm has been one of Costa’s brighter spots, benefiting from rising coffee consumption in major cities, but it also presents a very different regulatory and competitive landscape that some bidders have been wary of taking on.

TDR already co-owns EG Group, the petrol forecourt operator that has rolled out Costa-branded outlets across service stations in the UK and Europe. That existing relationship is seen as a strategic rationale for the bid, with scope to deepen Costa’s presence in travel and convenience locations rather than relying solely on high street footfall.

However, people close to the talks said TDR had been cautious on valuation, given Costa’s recent losses and the capital investment required to modernise stores, refresh formats, and accelerate international growth.

A crowded auction thins out

The sale process has attracted interest from a wide range of private capital groups, though many have fallen away as scrutiny of Costa’s numbers has increased. Bain Capital’s special situations division, which owns Gail’s and PizzaExpress, was among the bidders earlier in the process. Centurium Capital, the private equity owner of China’s Luckin Coffee chain, has also been involved, according to people familiar with the auction.

Apollo and KKR, two of the largest global private equity firms, have both dropped out in recent months. Their exits were seen by some advisers as a sign that appetite for large-scale consumer-facing deals remains limited, particularly where earnings are under pressure and recovery is uncertain.

The shrinking field has left Coca-Cola with less leverage in negotiations, increasing the risk that it may have to accept a lower price or walk away altogether.

Strategic rethink under way

The potential collapse of the Costa sale comes at a sensitive moment for Coca-Cola, which is preparing for a change at the top. The group announced this week that Quincey will step aside as chief executive in March, to be replaced by chief operating officer Henrique Braun. Quincey will move into the role of executive chair.

Braun has been closely involved in Coca-Cola’s operational overhaul and portfolio reshaping, including efforts to focus on brands and categories that align more closely with the company’s core strengths. Analysts see the outcome of the Costa process as an early signal of how decisive the new leadership team is willing to be.

If the sale fails, Coca-Cola will face a choice between doubling down on efforts to turn Costa around or revisiting the divestment at a later date, potentially at a lower valuation.

Broader pressures on consumer deals

The uncertainty surrounding Costa also reflects wider challenges in the consumer and leisure sector. Rising interest rates over the past two years have pushed up the cost of financing leveraged buyouts, while volatile trading conditions have made future cash flows harder to predict.

Private equity firms are increasingly selective, favouring assets with clear pricing power, strong brand loyalty, and resilient margins. Coffee chains, by contrast, sit at the intersection of discretionary spending and high fixed costs, making them vulnerable when footfall softens or costs spike.

That backdrop helps explain why bidders have been reluctant to meet Coca-Cola’s price expectations, even for a well-known brand with global reach.

Decision looming

People familiar with the situation said Coca-Cola is expected to decide next week whether to continue negotiating or to shelve the sale process altogether. While talks with TDR remain ongoing, there is no guarantee a compromise can be reached.

Coca-Cola declined to comment on the discussions. TDR and Lazard also declined to comment.

For now, the fate of Costa Coffee hangs in the balance, with a deal still possible but far from assured. Whether Coca-Cola can finally draw a line under a troubled acquisition may depend on how much value it is willing to sacrifice in order to move on.