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Trade fears weigh on markets, as Coca-Cola buys Costa Coffee for £3.9bn - business live Trade fears weigh on markets, as Coca-Cola buys Costa Coffee for £3.9bn - business live
(35 minutes later)
US markets have opened slightly lower, as investors on both sides of the Atlantic remain concerned about prospects for global trade.
Dow Jones: -0.1% at 25,954
S&P 500: -0.2% at 2,897
Nasdaq: -0.1% at 8,081
DIY chain Homebase is to cut 1,500 jobs as part of a rescue deal designed to save the company from looming bankruptcy and give it breathing space to recover from the disastrous stewardship of its previous owners.
Creditors owed £1.2bn by the company voted in favour of a company voluntary arrangement (CVA), that will lead to the closure of 42 out of 241 branches, with landlords on a further 70 stores agreeing to accept rent cuts of up to 90%.
Approval for the deal at a crunch meeting held on Friday means Homebase will stave off administration but will also mean 1,500 of its 11,000-strong workforce are likely to be made redundant.
The company has already shed more than 300 jobs at its head office under the ownership of turnaround specialist Hilco, which bought Homebase for £1 in May from Australian firm Wesfarmers, which paid £340m for the company just two years earlier.
US markets are expected to fall when Wall Street opens, as the gloomy sentiment in Europe is echoed across the Atlantic:
US Opening Calls:#DOW 25929 -0.24%#SPX 2895 -0.20%#NASDAQ 7631 -0.16%#IGOpeningCall
The delay to Crossrail is a “national embarrassment” according to the Federation of Small Businesses.The delay to Crossrail is a “national embarrassment” according to the Federation of Small Businesses.
Mike Cherry, National Chairman of the trade body, said:Mike Cherry, National Chairman of the trade body, said:
This appalling situation will cause both financial and reputational damage. It is embarrassing for the UK to be seen as unable to deliver this major infrastructure project on time or on budget, with knock-on consequences for UK PLC.This appalling situation will cause both financial and reputational damage. It is embarrassing for the UK to be seen as unable to deliver this major infrastructure project on time or on budget, with knock-on consequences for UK PLC.
For Crossrail to announce such a huge delay only three months from the due date of a ten-year project is completely unacceptable. To blame ‘complexity’ is puzzling on a project which everyone knew from the beginning was complex.For Crossrail to announce such a huge delay only three months from the due date of a ten-year project is completely unacceptable. To blame ‘complexity’ is puzzling on a project which everyone knew from the beginning was complex.
Small businesses along the route of the Elizabeth Line, from Berkshire to Essex and across London, have long been preparing for a December roll-out of the first phase of this vital new transport infrastructure.Small businesses along the route of the Elizabeth Line, from Berkshire to Essex and across London, have long been preparing for a December roll-out of the first phase of this vital new transport infrastructure.
The delay means nine months of extra construction costs, nine months of lost revenues and nine months of continued pressure on the jam-packed transport routes Crossrail was meant to ease.The delay means nine months of extra construction costs, nine months of lost revenues and nine months of continued pressure on the jam-packed transport routes Crossrail was meant to ease.
In the UK, the ticket resale website Viagogo is to be taken to court by the competition watchdog for alleged breaches of consumer law after refusing repeated requests to change its practices.In the UK, the ticket resale website Viagogo is to be taken to court by the competition watchdog for alleged breaches of consumer law after refusing repeated requests to change its practices.
The Competition and Markets Authority cited a range of practices it said were breaching the rights of consumers buying tickets for live events.The Competition and Markets Authority cited a range of practices it said were breaching the rights of consumers buying tickets for live events.
Andrea Coscelli, the CMA’s chief executive, said:Andrea Coscelli, the CMA’s chief executive, said:
Unfortunately, while other businesses have agreed to overhaul their sites to ensure they respect the law, Viagogo has not.Unfortunately, while other businesses have agreed to overhaul their sites to ensure they respect the law, Viagogo has not.
We will now be pursuing action through the courts to ensure that they comply with the law.We will now be pursuing action through the courts to ensure that they comply with the law.
Read our full story here:Read our full story here:
Over in Washington, the clock is ticking as Canadian and US negotiators attempt to reach an agreement on the North American Free Trade Agreement (NAFTA), ahead of tonight’s deadline, imposed by Donald Trump.Over in Washington, the clock is ticking as Canadian and US negotiators attempt to reach an agreement on the North American Free Trade Agreement (NAFTA), ahead of tonight’s deadline, imposed by Donald Trump.
Loonie Slides As Canadian Officials Reportedly Doubt NAFTA Deal Will Get Done https://t.co/Um5txAplHZLoonie Slides As Canadian Officials Reportedly Doubt NAFTA Deal Will Get Done https://t.co/Um5txAplHZ
Our full story on Trump and the WTO:Our full story on Trump and the WTO:
Another factor weighing on investor sentiment is Donald Trump’s rejection of an offer from the EU to scrap tariffs on cars if the US reciprocated.Another factor weighing on investor sentiment is Donald Trump’s rejection of an offer from the EU to scrap tariffs on cars if the US reciprocated.
The US President said the offer was “not good enough”, adding that European “consumer habits are to buy their cars, not to buy our cars.”The US President said the offer was “not good enough”, adding that European “consumer habits are to buy their cars, not to buy our cars.”
Connor Campbell, financial analyst at Spread Ex, said the snub was among a number of factors dragging markets lower this morning:Connor Campbell, financial analyst at Spread Ex, said the snub was among a number of factors dragging markets lower this morning:
The main issue, as is so often the case, seems to be Donald Trump, namely the fact the sabre-rattling President rejected an offer from the European Union to eliminate auto tariffs if the US did the same, claiming the deal was ‘not good enough’.The main issue, as is so often the case, seems to be Donald Trump, namely the fact the sabre-rattling President rejected an offer from the European Union to eliminate auto tariffs if the US did the same, claiming the deal was ‘not good enough’.
There had been some hopes the US signing a trade deal with Mexico earlier in the week meant things were perhaps moving in the right direction. However, with reports that Trump is looking to impose additional tariffs on China, his threat to pull the US out of the WTO and the tense, terse situation with both the EU and Canada, the markets are back to fretting about his next move.There had been some hopes the US signing a trade deal with Mexico earlier in the week meant things were perhaps moving in the right direction. However, with reports that Trump is looking to impose additional tariffs on China, his threat to pull the US out of the WTO and the tense, terse situation with both the EU and Canada, the markets are back to fretting about his next move.
President Trump has said he would pull out of the World Trade Organization if it doesn’t give the US a better deal.President Trump has said he would pull out of the World Trade Organization if it doesn’t give the US a better deal.
He made the comments in an Oval office interview with Bloomberg:He made the comments in an Oval office interview with Bloomberg:
“If they don’t shape up, I would withdraw from the WTO.“If they don’t shape up, I would withdraw from the WTO.
Trump added the agreement establishing the body “was the single worst trade deal ever made.”Trump added the agreement establishing the body “was the single worst trade deal ever made.”
The comments have made investors jittery, adding to the (already major) uncertainty surrounding global trade.The comments have made investors jittery, adding to the (already major) uncertainty surrounding global trade.
Here are the latest scores across equity markets in Europe:Here are the latest scores across equity markets in Europe:
FTSE 100: -0.5% at 7,480FTSE 100: -0.5% at 7,480
Germany’s DAX: -1.1% at 12,361Germany’s DAX: -1.1% at 12,361
France’s CAC: -1.3% at 5,408France’s CAC: -1.3% at 5,408
Italy’s FTSE MIB: -0.7% at 20,361Italy’s FTSE MIB: -0.7% at 20,361
Spain’s IBEX: -0.9% at 9,383Spain’s IBEX: -0.9% at 9,383
Europe’s STOXX 600: -0.7% at 383Europe’s STOXX 600: -0.7% at 383
Donald Trump awarded his presidency a grade of A+ when we interviewed him in the Oval Office https://t.co/B0zOyiTfPnDonald Trump awarded his presidency a grade of A+ when we interviewed him in the Oval Office https://t.co/B0zOyiTfPn
Away from Costa Coffee, there are plenty of other developments this morning.Away from Costa Coffee, there are plenty of other developments this morning.
The opening of the £15bn Crossrail line across London has been delayed by nearly a year as more time is needed to finish the infrastructure and carry out safety testing.The opening of the £15bn Crossrail line across London has been delayed by nearly a year as more time is needed to finish the infrastructure and carry out safety testing.
Services on what is to be known as the Elizabeth line were due to start running in December this year, but the central section between Paddington and Abbey Wood will not be opened until autumn 2019.Services on what is to be known as the Elizabeth line were due to start running in December this year, but the central section between Paddington and Abbey Wood will not be opened until autumn 2019.
The Crossrail chief executive, Simon Wright, said:The Crossrail chief executive, Simon Wright, said:
The Elizabeth line is one of the most complex and challenging infrastructure projects ever undertaken in the UK and is now in its final stages. We have made huge progress with the delivery of this incredible project but we need further time to complete the testing of the new railway.The Elizabeth line is one of the most complex and challenging infrastructure projects ever undertaken in the UK and is now in its final stages. We have made huge progress with the delivery of this incredible project but we need further time to complete the testing of the new railway.
We are working around the clock with our supply chain and Transport for London to complete and commission the Elizabeth line.We are working around the clock with our supply chain and Transport for London to complete and commission the Elizabeth line.
Read our full story here:Read our full story here:
Russ Mould, investment director at AJ Bell, spells out why investors think Whitbread has done a very good deal with Coca-Cola:Russ Mould, investment director at AJ Bell, spells out why investors think Whitbread has done a very good deal with Coca-Cola:
Analysts had been valuing Costa at around 12 times EBITDA (earnings before interest, taxes, depreciation and amortization) or £15.50 per share.Analysts had been valuing Costa at around 12 times EBITDA (earnings before interest, taxes, depreciation and amortization) or £15.50 per share.
The £3.9 billion sale price equates to £21.25 a share and that 575p-per-share uplift explains why the shares are up so much, especially as Whitbread clearly intends to return a chunk of the cash proceeds directly to shareholders.The £3.9 billion sale price equates to £21.25 a share and that 575p-per-share uplift explains why the shares are up so much, especially as Whitbread clearly intends to return a chunk of the cash proceeds directly to shareholders.
Whitbread shares are currently up 16% at £46.74.Whitbread shares are currently up 16% at £46.74.
Not everyone is madly impressed by the £3.9bn Costa Coffee/Coca-Cola deal.Not everyone is madly impressed by the £3.9bn Costa Coffee/Coca-Cola deal.
Oliver Sherman, analyst for investment firm Northern Trust Capital Markets, says investors this morning have focused on the cash windfall from the deal, rather than the long-term challenges facing the remaining Whitbread business.Oliver Sherman, analyst for investment firm Northern Trust Capital Markets, says investors this morning have focused on the cash windfall from the deal, rather than the long-term challenges facing the remaining Whitbread business.
As changes of direction go, the announcement by Whitbread chief executive Allison Brittain that the company is selling Costa to Coca-Cola for £3.9bn, rather than plan announced in April to spin it off and list it as a publicly traded company is one deserving of kudos.As changes of direction go, the announcement by Whitbread chief executive Allison Brittain that the company is selling Costa to Coca-Cola for £3.9bn, rather than plan announced in April to spin it off and list it as a publicly traded company is one deserving of kudos.
Whitbread has generated quite the return on the £19m paid over 20 years ago. Whitbread’s share price jumped in early trading as shareholders focused on the cash windfall rather than the long-term challenges ahead for Premier Inns and its related restaurants businesses.Whitbread has generated quite the return on the £19m paid over 20 years ago. Whitbread’s share price jumped in early trading as shareholders focused on the cash windfall rather than the long-term challenges ahead for Premier Inns and its related restaurants businesses.
Alison Brittain, Whitbread chief executive, has been hosting a call with City analysts.
When asked by one analyst why the company hadn’t given a trading update, alongside the deal announcement, she said she’d been focused on a £3.9bn deal that was only signed at 6.52am this morning. Fair point.
Brittain adds that the "absolutely stonking" Costa/Coke deal was "signed at 652am this morning and announced 8 minutes later".
Some consumers are wondering what new drinks will be on offer when Coca-Cola takes ownership of Costa Coffee:
Coca-Cola company buying out the Costa Coffee business? Can't wait for a Diet Coca Latte with a hint of peach.
If Coca Cola buys Costa Coffee will they introduce a Coca Cola Cappuccino?
The Costa Coffee brand will give Coca-Cola access to one of the few segments of the drinks market where it does not have a global brand.
It also allows it to diversify away from its main business of sugary fizzy drinks, at a time when governments say they are committed to tackling rising global obesity.
In Coca-Cola’s own words:
For Coca-Cola, the expected acquisition adds a scalable coffee platform with critical know-how and expertise in a fast-growing, on-trend category. Costa ranks as the leading coffee company in the United Kingdom and has a growing footprint in China, among other markets.
Costa has a solid presence with Costa Express, which offers barista-quality coffee in a variety of on-the-go locations, including gas stations, movie theaters and travel hubs. Costa, in various formats, has the potential for further expansion with customers across the Coca-Cola system.
The acquisition will expand the existing Coca-Cola coffee lineup by adding another leading brand and platform. The portfolio already includes the market-leading Georgia brand in Japan, plus coffee products in many other countries.
Costa also provides Coca-Cola with strong expertise across the coffee supply chain, including sourcing, vending and distribution. This will be a complement to existing capabilities within the Coca-Cola system.
Whitbread’s shares are at the highest level since late 2015, as investors digest the news that the group is selling its Costa Coffee chain to Coca-Cola for £3.9bn.
Whitbread has pledged this morning that a “significant majority” of the net proceeds from the sale of Costa will be returned to shareholders.
But investors might have mixed feelings about the deal, according to Nicholas Hyett, equity analyst at Hargreaves Lansdown:
This is a bitter sweet moment for Whitbread investors.
On the one hand £3.9 billion is an undeniably rich valuation and likely far better than Costa could achieve as an independently listed company, valuing its earnings higher than those of the mighty Starbucks. On the other, Costa has long been the jewel in Whitbread’s crown and some will be sad to see it go at any price, especially given the growth potential in China and elsewhere.
It’s hard to see how things could have turned out differently given the price on offer though, and Coca-Cola are one of the few companies in the world that could justify the valuation. Its global reach should turbo-charge growth in the years to come, and hot drinks are one of the few areas of the wider beverages sector where the soft drinks giant doesn’t have a killer brand. Costa will get lots of care and attention.
Whitbread is the runaway leader of the FTSE 100, with shares jumping 18% in early trading to £47.55.
Investors clearly think the group has got a deal, selling its Costa Coffee chain to Coca-Cola for £3.9bn (having bought it for £19m in 1995.
Michael Hewson, chief market analyst at CMC Markets UK:
It is with some surprise that investors are digesting today’s announcement from Coca Cola that they have agreed a deal to buy the coffee chain for $5.1bn. It would appear that the US business, like a lot of its peers, is looking to diversify away from its core business of sugary drinks, an area that has been increasingly attracting government ire due to a rising global obesity problem.
Investors certainly appear to like the deal, not surprising given the pledge that most of the proceeds look set to be returned to shareholders, with the shares rising strongly on the open hitting their highest levels since December 2015.
Neil Wilson, chief market analyst at markets.com, says that Alison Brittain has acted faster than expected, after announcing plans in April to demerge Costa Coffee from the rest of the Whitbread group in response to investor pressure.
He says it looks like a good deal for Whitbread:
Clearly Coca-Cola sniffed an opportunity to gain an attractive brand with a fast-growing global presence. It’s a pretty good return too on the £19m Whitbread paid for the coffee chain over 20 years ago.
From the Coca-Cola perspective, initial thoughts are that it marks a substantial investment in branded coffee and places it squarely against Nestle and Starbucks. Can’t help but feel Coca-Cola thinks this is the ideal way into a frothy market that it’s maybe missed out on so far.
The sale also comes at a very tough time for Britain’s high streets, and Costa has not been entirely spared, with like-for-like (LFL) sales down in the first quarter.
Wilson adds:
Back to the growth story at Costa, the concern is that sales growth is stalling. Costa is exposed to areas like the high street where lower footfall translates into fewer cups of coffee being sold.
First quarter Costa UK sales growth of 5.2% was driven by new stores and Express machines – we note particularly strong growth in Express of 9.6% in the quarter. But LFL declined by 2%, which management put down to the ‘general retail market conditions’.
We have been seeing and warning about declining LFL at Costa for some time and this 2% drop was a concern about how the brand is performing on the high street. Lower footfall is one thing, but we continue to see Costa facing tougher competition from artisan coffee retailers who are taking market share.
Alison Brittain, Whitbread’s chief executive, has been speaking to the BBC Radio 4’s Today programme.
She said that Coca-Cola want to buy Costa because it currently has no coffee in its range. “Ready to drink, cold brew coffees,” could be coming our way, she suggests.
Brittain added:
They want the coffee product, they have no coffee in their range.
You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes - in all the places you see Coke today.
In the last few years we’ve been building the brand of Costa and making it international, and so for the first time really now, we’ve had an organisation like Coca-Cola who are really interested in the Costa business.
The price they have offered us is significantly higher than the company could achieve through a de-merger or its own listing.
Whitbread bought Costa in 1995 for £19m when it had only 39 shops. It is now one of the best known names on UK high streets, and the world’s second largest coffee chain after Starbucks.
Costa now has almost 4,000 stores in 32 countries, including 2,400 in the UK. It also has more than 8,000 Costa Express machines in eight countries.
The sale follows pressure from activist investors who argued Whitbread should be split into distinct businesses, to allow it to better focus on its Premier Inn chain of hotels and restaurant brands such as Brewers Fayre and Beefeater.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Major breaking news this morning as Whitbread announces it is selling its Costa Coffee chain to Coca Cola for £3.9bn.
Alison Brittain, Whitbread chief executive, said the deal was “great news” for shareholders as the price received from Coca-Cola was far higher than if it had decided to demerge the business instead.
She added:
Whitbread will also reduce debt and make a contribution to its pension fund, which will provide additional headroom for the expansion of Premier Inn.
James Quincey, Coca-Cola president and chief executive said:
Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.
Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform.
More soon...