Whitbread PLC (WTB.LN) coffee-shop subsidiary Costa Ltd. Tuesday said it had agreed to buy coffeeheaven international PLC (COH.LN) for about GBP36 million in a deal that provides a Central and Eastern European platform for Costa's international expansion.

"It is an important step forward in achieving Costa's strategic objectives and international growth ambitions," said Costa Managing Director John Derkach. "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."

Costa will gain coffeeheaven's 90 coffee shops in Central and Eastern Europe comprising 62 shops in Poland, 14 in the Czech Republic and 14 across Bulgaria, Hungary and Latvia.

Costa, founded in 1971, and has more than 1,000 stores in the UK and more than 400 internationally. All its international stores are operated under franchise, in some cases via joint ventures with local partners. It reported revenue in the fiscal first half ended Aug. 27 of GBP155.4 million and operating profit of GBP12.6 million.

The fast-growing chain will pay 24 pence in cash for each coffeeheaven share, a 25% premium to the closing price June 11, the day before an announcement by coffeeheaven that it had initiated early stage preliminary discussions that could lead to an offer for the business. Coffeeheaven's shares Monday closed at 22.25 pence.

Costa said it had received irrevocable acceptances from all of the coffeeheaven directors and certain other shareholders representing approximately 19% of shares. The directors intend to recommend that coffeeheaven shareholders accept the offer.

"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," said coffeeheaven Chairman Richard Worthington.

Under the terms of the deal, coffeeheaven will be managed as a subsidiary of Costa.

Costa is a wholly-owned unit of Whitbread, the U.K.'s largest hotel and restaurant company operating brands in the budget hotel, restaurant and coffee shop sectors, whose brands include Premier Inn, Beefeater and Brewers Fayre. Whitbread posted operating profit in the first half of GBP127 million on revenue of GBP703.3 million.

At 0945 GMT, Whitbread shares traded up 15 pence, or 1.1%, at 1395 pence, making it one of the top gainers in the benchmark FTSE 100 index, which traded down 0.4%. Shares in coffeeheaven traded up a penny, or 4.5%, at 23 pence.

The acquisition of coffeeheaven by Costa "ticks both boxes" on strategic fit and pricing, said Evolution Securities in a note. It reiterated its buy recommendation on Whitbread and said its 1380 pence price target is under review following Monday's trading update.

-By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; jonathan.buck@dowjones.com
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