Why this deal, why now
TDR Capital’s proposed acquisition of Costa Coffee is shaping up as a stress test for UK consumer valuations. Coca-Cola’s willingness to sell Costa at a materially lower price than its 2018 entry point signals a more disciplined market for branded, operationally complex consumer platforms, particularly where recent performance has been under pressure.
The transaction, recently announced at EUR 1,575.5 million, has been reported in the press as a process targeting around £2 billion (or lower) for Costa’s business outside China. Multiple reports indicate a meaningful valuation disconnect, with negotiations stalling as TDR pushes back on price.
The deal
- Acquirer: TDR Capital
- Target: Costa Coffee
- Deal type: Acquisition
- Announced value: EUR 1,575.5 million
- Geography: GB (Costa’s broader operations referenced as UK and international, excluding China)
- Status: Reported as progressing with TDR as preferred bidder, but price talks have reportedly paused
The Financial Times has reported that conversations have stopped over the deal’s value, raising the risk of a failed process.
An against-trend signal: exit below entry
Coca-Cola acquired Costa Coffee in 2018 for approximately $5.1-$5.2 billion (£3.9 billion). Press reporting on the current sale process suggests a contemplated valuation around £2 billion ($2.7 billion), with indications that bidders have floated $1.23-$2.46 billion valuation ranges.
That implies a value gap of roughly $2.4-$2.5 billion versus Coca-Cola’s original purchase price. In a market where consumer deals often lean on brand resilience and pricing power, this process highlights how quickly underwriting changes when growth slows, costs inflate, and operational execution becomes the core driver of value.
What TDR is really buying: distribution and repeat occasions
TDR’s ownership positions create a clear strategic logic. The firm owns Asda and co-owns EG Group, giving it one of the UK’s most relevant physical footprints for coffee-led food-to-go.
Costa brings two assets that fit that footprint:
- A retail network with established consumer awareness.
- Costa Express self-serve machines, a distribution format that can scale through third-party locations.
The strategic appeal is straightforward: use Asda stores and EG forecourts as channels to expand coffee availability, improve unit economics, and drive higher frequency missions. This is less a “brand roll-up” play and more a route-to-market and placement play.
The hard part: valuation meets operating reality
The reported stalling over price is consistent with the operational questions hanging over Costa.
Key context from reporting includes:
- Prolonged valuation disputes since 2023, suggesting sellers and buyers have been far apart for multiple cycles.
- Regulatory hurdles cited alongside pricing challenges.
- Costa’s reported 2023 losses in the range of £9.6 million-£13.8 million pre-tax, which weakens the case for a premium valuation unless there is a clear, near-term path to margin recovery.
For TDR, the investment case likely hinges on whether it can underwrite a credible turnaround and growth plan through its existing retail estate. For Coca-Cola, the question is whether holding the asset longer improves value or simply extends the period of uncertainty and reinvestment.
Integration is the thesis, and the risk
This transaction is unusual because the synergy narrative is compelling, but execution is non-trivial.
Key questions for diligence and post-close execution include:
- Go-to-market overlap: How Costa retail sites, Asda in-store formats, EG forecourt concessions, and Costa Express placements coexist without cannibalising one another.
- Systems and data: Whether Costa’s operational systems can integrate with Asda and EG environments fast enough to support procurement, pricing, and performance management.
- Leadership bandwidth: Whether Costa’s management team has the depth to run a multi-format expansion while stabilising profitability.
- Brand standards at scale: Maintaining quality and consistency when growth is driven through third-party or semi-captive locations.
What to watch next
- Whether Coca-Cola and TDR can bridge the valuation gap and restart paused discussions.
- Clarity on scope: confirmation of which geographies are included and the carve-out mechanics (China excluded per reporting).
- Any read-through on regulatory conditions and timing risk.
- Evidence of operational momentum at Costa that could shift leverage in negotiations.
- How TDR frames synergies across Asda, EG, Costa retail, and Costa Express, and the investment required to capture them.