'A huge premium': Here's how analysts are reacting to Coca-Cola's deal to buy Costa Coffee

Monique Pollard and her team at Citi believe the deal will give Costa Coffee's parent company, Whitbread, a £3.2 billion ($4.15 billion) boost on its balance sheet.

"The transaction is a cash and debt-free deal, with Whitbread’s financial debt and pension fund staying with Premier Inn. We estimate c.£3.2b of cash proceeds available post transaction costs, pay-down of Whitbread’s pension deficit and cash to be spent on management’s previously announced German hotel acquisitions."

"This is a bitter sweet moment for Whitbread investors," Nicholas Hyett, equity analyst at Hargreaves Lansdown said.

"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."

Market research firm Euromonitor focuses on Coca-Cola filling the one gap it has in its drinks portfolio.

"Hot beverages are one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand and Costa gives them access to this market through a strong coffee platform," analyst Maxine Vogt wrote.

Joshua Mahony, a market analyst at IG sees the sale as smartly timed by Whitbread given the current policy landscape in the UK.

"Whitbread’s sale of Costa Coffee to Coca-Cola could prove a shrewd move at a time where we are seeing the government cracking down on high caffeine products. There is little reason to believe that we will see a crackdown on coffee, yet there is a feeling that the public is becoming aware of the negative effects of high caffeine intake," he wrote in an email.

"There is an argument over recent years that points towards a saturation point for UK coffee stores, and with this move, Whitbread seems to have exited the market at a great point."

"As changes of direction go, the announcement by Whitbread CEO 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," Oliver Sherman wrote.

"Whitbread has generated quite the return on the c.£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."