Whit­bread un­der mount­ing pres­sure to spin off Costa Cof­fee

The Daily Telegraph - Business - - Business - By Rhi­an­non Curry

PRES­SURE is mount­ing on Whit­bread to spin off its Costa Cof­fee chain af­ter El­liott, the US hedge fund, swooped to be­come the leisure gi­ant’s largest share­holder.

El­liott made its move late on Fri­day, dis­clos­ing its share­hold­ing was now worth more than £430m which makes it Whit­bread’s top in­vestor with a stake of more than 6pc. The feared Amer­i­can ac­tivist is thought to hold the view that as much as £3bn of value could be cre­ated by split­ting the cof­fee shop chain from Whit­bread’s Premier Inn bud­get ho­tel arm, The Sun­day Times re­ported.

Shares in Whit­bread have re­mained vir­tu­ally flat over the past 12 months amid a more gen­eral slow­down on the high street. Sep­a­rat­ing Costa from the Premier Inn ho­tel chain could im­prove the mood among White­bread in­vestors, some of whom fear that the com­pany is strug­gling to re­spond to grow­ing com­pe­ti­tion for squeezed con­sumer bud­gets.

It has been sug­gested that al­low­ing the two busi­nesses to trade sep­a­rately could pro­duce a 40pc rise in value for Whit­bread in­vestors.

In Jan­uary, Ali­son Brit­tain, Whit­bread’s chief ex­ec­u­tive, fu­elled specu- la­tion that Costa could be spun off, sug­gest­ing she re­mained “en­tirely open-minded” about the struc­ture of the busi­ness.

The com­ments were in­ter­preted as a sign Whit­bread could con­sider a breakup fol­low­ing a se­ries of share­holder meet­ings in the fol­low­ing weeks, but no fur­ther de­tails emerged.

Sachem Head, an­other US hedge fund which is a fel­low share­holder in the FTSE 100 com­pany, has also been push­ing for a break-up.

It had orig­i­nally called for the spin off of Costa, but in Fe­bru­ary The Sun­day Tele­graph re­ported that Sachem favoured a more com­pre­hen­sive plan which would also in­clude the sale and lease­back of its Premier Inn ho­tel es­tate and a ratcheting up of debt lev­els. Money raised would then be handed back to in­vestors. Whit­bread’s like-for- like sales were up just 0.3pc in its last set of quar­terly re­sults, which showed a 0.1pc de­cline at Costa Cof­fee, out­weighed by a 0.5pc rev­enue in­crease at Premier Inn.

Ms Brit­tain claimed Whit­bread’s plans to open more Costa out­lets in air­ports and train sta­tions, along with its ex­pan­sion in China, will spur new growth. It is also open­ing Amer­i­canstyle drive-through cof­fee out­lets.

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