Luckin Coffee Inc. (LKNCY) has earned the nickname "the Starbucks of China" by building nearly four times as many stores in its home market as the American coffee giant. Now, it looks like Luckin might be ready to ditch that comparison altogether by taking the fight global.

China's leading coffee chain is reportedly in discussions with one or more banks for a $900 million loan to finance a bid for Costa Coffee, the British chain that Coca-Cola is looking to offload. If the deal goes through, Luckin would instantly leap from being essentially a China-focused operator to having a presence in more than 50 countries worldwide.

A Deal That Could Redraw the Coffee Map

Multiple media outlets are reporting that Luckin, along with its private equity backer Centurium Capital (or possibly both together), are exploring a potential bid for Costa. The British chain operates around 4,000 stores across 52 countries, which might sound modest compared to the big players, but here's the thing: it's the global footprint that matters.

Right now, Luckin's international presence is practically nonexistent. Outside mainland China, you'll only find its stores in four markets: the United States, Singapore, Malaysia, and Hong Kong. And even in those places, the store count is barely worth mentioning.

Costa, meanwhile, has spent decades building relationships and learning local markets across Europe, Asia, and beyond. Yes, its 4,000 stores pale in comparison to Luckin's 29,214 locations as of September. But combine them? You're looking at more than 33,000 stores, suddenly nipping at the heels of Starbucks (SBUX), which had 40,990 locations worldwide at the end of September.

The exact bidding structure remains somewhat murky. It's not entirely clear whether Luckin or Centurium Capital—a major Chinese private equity firm founded by former Warburg Pincus veteran David Li—would technically make the bid. But honestly, it probably doesn't matter much. Either way, you can bet Costa's stores would end up folded into the Luckin universe.

The Money Side of Things

According to reports from Bloomberg and others, a deal could value Costa at approximately 1 billion pounds (roughly $1.3 billion). That's a pretty remarkable markdown from the 3.9 billion pounds Coca-Cola paid to acquire Costa from Britain's Whitbread Plc back in 2018. Apparently, the coffee business didn't work out quite as Coca-Cola had hoped.

The separate Mergermarket report mentioning the $900 million loan talks suggests Luckin is serious about getting this done. And frankly, securing that kind of financing shouldn't be too difficult. Luckin is basically a cash-generating machine these days, sitting on 8.57 billion yuan (about $1.2 billion) in cash, short-term investments, and term deposits at the end of September. That's up nearly 50% from the 5.74 billion yuan it had at the end of last year.

Luckin isn't the only interested party, though. Bain and British buyout firm TDR Capital are also reportedly circling Costa, so this could turn into a competitive bidding situation.

The Listing Situation Remains Complicated

Here's where things get a bit awkward. Five years ago, Luckin could have easily tapped the capital markets for acquisition financing—it was the hot growth story everyone wanted a piece of. Today, raising money through stock sales would be considerably harder because Luckin's shares only trade over-the-counter, which prevents most major institutional buyers from participating.

The company's shares originally traded on the Nasdaq main board after its 2019 IPO. Then came the bombshell: a massive accounting scandal in 2020 that uncovered hundreds of millions of dollars in fabricated sales. The company's top two executives were booted, and the stock was relegated to OTC status.

Luckin CEO Guo Jinyi mentioned earlier this month that the company was preparing to relist on the Nasdaq, though he quickly walked back those comments after media coverage. That's probably wise, because getting a second chance on Wall Street after a scandal of that magnitude would set quite a precedent. Companies rarely get do-overs for fraud, even when they've cleaned house and reformed.

Making matters more complicated, Chinese companies are facing an increasingly hostile environment on Wall Street, with some politicians calling for delistings. Luckin could potentially pursue a listing on the Hong Kong Stock Exchange, where many major U.S.-listed Chinese firms have added secondary listings in recent years. But even Hong Kong might balk at accepting Luckin, given its focus on corporate governance and the precedent it would set.

With a $10 billion market cap, Luckin is probably the most valuable OTC company of all time, which is itself a fascinating data point.

Investor Reaction and Valuation

Investors weren't exactly thrilled about the Costa news. Luckin's U.S.-listed shares fell 2.1% on Thursday after the reports emerged. Still, the stock is up 46% this year, though its price-to-earnings ratio of 21 looks relatively modest compared with the somewhat inflated 54 for Starbucks and the 27 for Mixue (2097.HK), China's leading bubble tea seller with a massive 53,000 stores across 12 global markets.

The Operating Business Looks Strong

The acquisition chatter comes less than a week after Luckin reported quarterly results that showed its breakneck expansion continues unabated. Revenue jumped 50% year-over-year to 15.3 billion yuan in the third quarter, with approximately 70% coming from freshly brewed drinks. The store count climbed 37% year-over-year to reach 29,214 by the end of September, which means revenue per store has been growing too.

Same-store sales at company-operated locations grew 14.4% in the third quarter, marking the best performance for that metric since Luckin returned to same-store sales growth this year after a year of contraction in 2024. The strong same-store sales growth is likely at least partially due to the recent cooling of a brutal price war launched by Cotti, a newcomer founded by—wait for it—the two disgraced executives who were kicked out of Luckin after the accounting scandal. You can't make this stuff up.

There are a few yellow flags in the results, though. Delivery expenses tripled in the latest quarter to 2.89 billion yuan, accounting for a fifth of total operating expenses. This appears connected to food delivery platforms scaling back the hefty subsidies they'd been offering, which had benefited companies like Luckin and restaurant operators.

The bottom line also tells a different story than the top line. Profit actually fell 2.3% to 1.28 billion yuan as the net margin contracted by more than 3 percentage points to 8.4% from 12.9% a year earlier. Rising delivery costs are clearly eating into profitability, which is something to watch going forward.

What This All Means

Despite the margin pressure, the overall picture remains broadly positive for Luckin. The company is growing rapidly, generating substantial cash, and apparently feeling confident enough to consider major acquisitions. If the Costa deal happens, it would transform Luckin from a Chinese coffee powerhouse into a genuine global player capable of challenging Starbucks on multiple continents.

Whether that's a smart strategic move or an overreach remains to be seen. International expansion is notoriously difficult in the restaurant business, and Costa hasn't exactly been a runaway success for Coca-Cola. But Luckin has proven it knows how to operate coffee shops efficiently and profitably at scale. The question is whether that expertise translates beyond China's borders.

For now, we're in the "considering a bid" phase, which means this could all amount to nothing. But if Luckin does pull the trigger, the global coffee wars are about to get a lot more interesting.