Whitbread is planning to sell its Costa Coffee business to The Coca-Cola Company in a deal worth £3.9bn.

Whitbread said it was approached by Coca-Cola after announcing plans in April to demerge Costa from the rest of its operations.

The Whitbread board unanimously agreed the offer would be in the best interests of shareholders and other stakeholders, and valued the business at 16.4 times Costa’s EBITDA for 2018. The company said this was a "substantial premium" over the value that would be created by Costa becoming a separately listed company through the demerger plan.

Whitbread said the move would reduce debt and contribute to the pension fund, providing funds to expand Premier Inn in the UK and Germany

“Whitbread acquired Costa in 1995, for £19m when it had only 39 shops, and successfully grew the business to be the UK’s favourite and largest coffee shop company,” said Whitbread chief executive Alison Brittain

“In more recent years, we have been focused on building Costa into a leading multi-channel, international coffee brand. This has resulted in this unique strategic opportunity to combine the Costa brand with Coca-Cola’s global scale, product and distribution capabilities.”

Costa now operates 2,400 coffee shops in the UK and has more than 1,400 sites in over 30 international markets. It also operates the fast-growing Costa Express self-serve business with more than 8,000 self-serve machines in eight countries. Costa has an in-home distribution and wholesale coffee business that it describes as having “high potential”.

Brittain added the acquisition by Coca-Cola would drive new product development at Costa, continued growth in the UK and more rapid expansion overseas.

“As a result of this strategic sale our teams, pensioners, suppliers, shareholders and other stakeholders will all have the opportunity to share in the benefits.”

Describing hot beverages as one of the few areas of the drinks market where Coca-Cola did not have a global brand, Coca-Cola president and CEO James Quincey said the deal would give his business new capabilities and expertise in coffee, while its system could create opportunities to grow the Costa brand worldwide.

The deal needs to be agreed by Whitbread shareholders and get anti-trust approval, and is expected to complete in the first half of 2019.

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Fraser McKevitt, head of retail and consumer insight at retail analysts Kantar Worldpanel, said the acquisition was a “big deal” for Coca-Cola.

“Coca-Cola doesn’t currently have any coffee outlets in its arsenal and this is an opportunity for the business to plug that gap and tap into this growing market,” he stated, adding the coffee market is worth £6.3bn a year in Great Britain and growing 4.3%.

“By acquiring a favourite out-of-home coffee brand, Coca-Cola is leapfrogging its way to having a substantial hot drinks offer,” McKevitt explained. “It also offers intriguing possibilities for the Costa name to appear in new formats, such as chilled variants, and reach a wider audience through Coca-Cola’s well-established distribution network.”

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