Hotel and restaurant group Whitbread PLC (WTB.L) Tuesday said its coffee shop unit Costa Ltd. has agreed to acquire smaller rival coffeeheaven international plc (COH.L) by paying 24 pence per coffeeheaven share in cash amounting to about GBP36 million. Whitbread had said last week that it was in advanced discussions to buy coffeeheaven.
The offer price represents a premium of about 22% to coffeeheaven's closing share price of 19.75 pence per share on December 10, the last business day before Whitbread said it was in discussions with coffeeheaven for a possible deal.
The deal will help Costa, a wholly-owned subsidiary of Whitbread, expand internationally. coffeeheaven Group operates 90 coffee shops in Central and Eastern Europe. It has 62 shops in Poland, 14 shops in the Czech Republic and 14 shops across Bulgaria, Hungary and Latvia. Costa currently has over 1,000 stores in the UK and more than 400 internationally.
Costa has received irrevocable undertakings from all coffeeheaven directors and certain other shareholders for 28.45 million coffeeheaven shares, which amount to about 18.98% of total shares. Directors of coffeeheaven intend to unanimously recommend that its shareholders accept the offer.
The deal will be funded from Whitbread's existing debt facilities. Deutsche Bank, financial adviser to Whitbread and Costa, confirmed that it is satisfied that sufficient resources are available to Costa to satisfy full acceptance of the offer. After completing the deal, coffeeheaven will be managed as a subsidiary of Costa.
Despite the recession cutting restaurant visits, Costa has had good performance this year. Costa's total sales increased 20.6% to GBP155.4 million for the first half ended August 27. Whitbread said on Monday that its third-quarter performance was boosted by the performance of Costa. During the third quarter, Costa's like-for-like sales increased 6.7% and sales increased 20.7% from the previous year.
For the six month period ended September 30, coffeeheaven Group reported revenues of GBP12.5 million, a marginal increase from last year's GBP11.9 million. The group's like-for-like sales growth was 5% and profit before taxation and non-cash share based payments grew to GBP0.2 million from GBP0.1 million reported last year.
Whitbread said the existing employment rights of coffeeheaven Group's employees will be safeguarded. Also, Costa does not plan to dispose of CHI Polska S.A. or any substantial part of its business to any third party and also does not plan to dispose of businesses within the coffeeheaven Group's other markets.
Commenting on the offer, John Derkach, Managing Director of Costa, said, "This transaction will give Costa a strong position in the important and rapidly growing Central and Eastern European market, with clear opportunities for synergies as well as a new pipeline of stores for the future. The acquisition represents continued value growth for our shareholders."
According to Richard Worthington, Executive Chairman of coffeeheaven, "...the coffeeheaven business should benefit from the substantial resources available to Costa and our staff will have the opportunity to work within a much larger group to continue to grow and develop the business."
Shore Capital is acting as the independent financial adviser to coffeeheaven.
WTB.L is currently trading at 1,398.05 pence, up 18.05 pence or 1.31%, on 5280 shares.
COH.L is currently up1.00 pence or 4.49% at 23.25 pence on 290,211 shares.
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