Costa demerger speculation mounts as Whitbread buys back coffee franchise

Speculation about a possible demerger of coffee shop chain Costa from Whitbread increased yesterday after Whitbread bought back one of Costa's biggest British franchises.

The company bought the Life Coffee Cafes franchise for a reported £11-12m, which analysts suggested paved the way to a £3b spin-off, according to The Times.

Whitbread has consistently played down the possibility of a split but one analyst told the paper: "Instead of deriving a modest royalty from these stores, Whitbread will now keep all the profits, in turn boosting the value of Costa when it is eventually spun off, which we expect to happen next year."

Life Coffee Cafes, based in Wimbledon, runs 16 stores across the south of England.

A Whitbread spokeswoman confirmed the deal but said it had no wider implications for the business.