Will hedge fund force Costa Coffee to be sold off?
SHARES in Costa Coffee owner Whitbread leapt almost 8pc after a US hedge fund took a stake in the firm, sparking speculation that it could be broken up.
new York-based Sachem head Capital Management now holds 3.4pc of Whitbread, which also owns Premier inn, sending the share price up 7.6pc, or 280p, to 3990p.
Sachem head is headed by Scott ferguson, the protege of billionaire activist investor Bill Ackman, and has a reputation for pressing management teams to overhaul their companies. it recently pushed for UK drugs maker Shire to break up several operations.
A report by Credit Suisse suggested in October that Whitbread could spin off Costa Coffee, sell its Beefeater and Brewers fayre pubs, or cash in on its £5bn property portfolio.
Analysts said it was possible that Sachem head had a similar move in mind. laith Khalaf, senior analyst at hargreaves lansdown, said: ‘hotels and coffee shops aren’t natural bedfellows so there’s a certain logic to breaking up the businesses and allowing investors to allocate their money in a more targeted manner.
‘Management appear to have no plans to go down this road, and to do so would require a major strategic overhaul.’
FTSE 100-listed Whitbread has struggled to appease investors as its share price petered out after rallying between 2011 to 2015.
Questions have been raised as to whether it should divide up its major operations, namely Costa Coffee and Premier inn, to deliver more value for shareholders.
Whitbread’s shares fell by almost 5pc last month as strong results from Premier inn failed to prop up a slowdown at Costa.
Management have been historically dismissive of calls to overhaul the group’s structure, but comments made by chief executive Alison Brittain, 52, last month suggested it might be coming round to suggestions.
Brittain, who earned £2.5m last year, explained the board had regular, in-depth talks regarding the correct structure of the group.
‘We are enormously open-minded in that discussion,’ she said. however, Chris Bailey, analyst and owner of financial Orbit, was sceptical that Sachem could force Whitbread’s hand.
he said: ‘CEOS like to build their empire, and so splitting up a company is the overt reverse of this, despite the value it can add for shareholders. however, if a stock is listed then activist shareholders can intervene – and certainly there is some shareholder unhappiness at Whitbread.’
Russ Mould, investment director at AJ Bell, added: ‘investors will also need to ponder whether the activist plan is just a short-term, quick kill that could still leave long-term returns on the table.
‘Whitbread is one of just 26 FTSE 100 firms to have increased its dividend every year for the past decade, and it has provided excellent total returns, beating the FTSE 100 hands down.’
Whitbread declined to comment.