Hedge funds pressure Whitbread to spin off Costa Coffee

Coffee

Whitbread is under mounting pressure from hedge funds to break up its business by spinning off the Costa Coffee chain, after activist investor Elliott Advisors built up a stake of more than 6%.

The US hedge fund said in a statement on Saturday that it has become the largest investor in Whitbread, which started out as a brewing business but now owns Costa, Britain’s biggest coffee outlet, and Premier Inn, the country’s biggest budget hotel company.

Elliott joins Sachem Head, another US hedge fund, which owns 3.4% of the FTSE 100 company, in pushing for a demerger of Costa. Elliott believes the 2,400-strong coffee shop chain and Premier Inn are two very distinct businesses with little overlap and that £3bn of value could be created by splitting off Costa. Whitbread shares have underperformed the wider stock market in recent years.

However, unlike Sachem Head, Elliott is not pushing for a sale and leaseback deal on the hotel properties and more share buybacks. Its sole strategic aim is to split off Costa. Whitbread declined to comment.

Alison Brittain, Whitbread’s chief executive, has said the group is open-minded about its structure but has also warned against moving too quickly to break up the company.

The idea is not new, because other investors and City analysts have repeatedly suggested that Whitbread should spin off its popular Costa chain. But Elliott has a reputation for pursuing its goals more aggressively than other investors.

Whitbread’s history dates back to 1742, and it listed on the London Stock Exchange on 1948.

The company grew into a sprawling leisure empire that included Beefeater, TGI Fridays and Pizza Hut restaurants along with David Lloyd Leisure gyms and Marriott Hotels. Most of these brands and the brewing operations have been sold, leaving Whitbread to focus on Costa and Premier Inn as well as the Beefeater and Brewers Fayre restaurant chains.

Today, the company has a market value of £7.2bn and employs 50,000 people.

Costa was acquired in 1995 from Sergio and Bruno Costa, who founded the chain in London in 1971. Costa has about 2,400 stores and 7,100 Express machines in the UK. The chain is being rolled out in China, while Premier Inn is expanding in Germany. The budget hotel chain is attracting increasing numbers of business travellers, who now make up half its customers.

In its latest update, Whitbread unveiled a 1.5% fall in like-for-like sales at its Costa high street outlets and warned consumer demand would remain subdued – but Brittain insisted this did not spell the end of the coffee shop boom.

Powered by Guardian.co.ukThis article was written by Julia Kollewe, for The Guardian on Sunday 15th April 2018 16.02 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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