Shares in soft-drinks group Coca-Cola (KO) lost their fizz today as private equity giant KKR (KKR) reportedly pulled out of a deal for is Costa Coffee chain.
Meet Your ETF AI Analyst
- Discover how TipRanks' ETF AI Analyst can help you make smarter investment decisions
- Explore ETFs TipRanks' users love and see what insights the ETF AI Analyst reveals about the ones you follow.
No Deal Brewing
According to reports in the British media, KKR had been interested in the business, which has nearly 3,000 stores in the U.K., when it was put up for sale last year. However, it is now understood to have decided not to make an offer.
The Sunday Times reported that ‘indicative offers are due in the next few days’ for the coffee chain which was bought by Coca-Cola in 2019 for £3.9 billion as it sought to expand into a wider range of beverages.
However, James Quincey, Coca-Cola’s chief executive, has said that Costa has “not quite delivered” under its ownership and is “not where we wanted it to be” in its financial returns. Coca-Cola is also looking to streamline its business to boost earnings.
Other potential bidders include private equity firms TDR and Bain (BCSF), while Centrium Capital, which owns China’s Luckin Coffee, is also said to be evaluating a bid.
It remains unclear whether Centurium would submit a bid independently or through Luckin Coffee.
Chinese Challenge
A deal for Centurium would mark its first major investment in Europe and potentially expand Luckin’s footprint into the U.K. That would bring more competition for U.S. giant Starbucks (SBUX) 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.,
City sources said Coca-Cola seemed unlikely to achieve the price it paid for Costa if it proceeds with the sale. Indeed, Chinese media has reported that Costa Coffee is likely to be valued at around $1.3 billion.
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 11.05% upside.
