Yahoo Finance Costa Coffee to spin off from Whitbread
Whitbread is to spin off its Costa Coffee chain from the rest of the business, which includes Premier Inn hotels, after pressure from activist investors.
The company said the demerger of the UK’s biggest coffee chain would be completed within two years, allowing shareholders to invest in “two distinct, focused and market-leading businesses”.
Activist investors have built up stakes in the group over the past year and argued that Whitbread would be best split into its two component parts, Costa, and the Premier Inn hotel and restaurant chains – the latter including restaurant brands such as Brewers Fayre and Beefeater.
Whitbread shares have underperformed the wider stock market in recent years, reflecting the fact that the two businesses are distinct and would be better off as separate entities, according to some investors.
Laith Khalaf, a senior analyst at the investment company Hargreaves Lansdown, said: “Coffee shops and hotel rooms don’t make natural bedfellows, so splitting off Costa Coffee from Premier Inn makes sense for Whitbread.
“The breakup will provide each of the two emerging companies with greater strategic focus on their own goals, and will allow investors to choose which of the two distinct brands they actually want exposure to.”
It is thought that Costa, which has 2,400 coffee shops, could be valued at about £3bn. Whitbread has a market value of about £8bn and employs 50,000 people.
Alison Brittain, the Whitbread chief executive, said that while the discussion about a potential separation had been around for years, the time was now right, partly because both businesses had established good growth prospects abroad.
She conceded that pressure from two investors, the US hedge funds Elliott Advisors and Sachem Head, had encouraged the board to bring forward the announcement about the demerger, to provide clarity for shareholders and employees.
“Given the significant strategic progress that has been made and the momentum in the delivery of the plan, the board is confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies,” she said.
Costa will be a separate listed company, while Whitbread will remain the owner of Premier Inn, the UK’s largest hotel chain.
Brittain said the two-year timeframe reflected the enormously complex process of separating the two businesses, which share, among other things, IT systems, a pension deficit and £1.8bn of loan facilities with banks and bondholders.
“If it can happen before April 2020, then that’s great, but we want to make sure we have the businesses in the strongest possible position,” she said.
Whitbread has expanded both businesses internationally, with Costa in China, Costa Express in other overseas markets, and Premier Inn in Germany, where it will have 31 hotels in 15 cities by 2021.
Mark Brumby, the chief executive of the leisure analyst Langton Capital, said: “Much will ride on Germany if Whitbread ex-Costa is to remain an exciting growth company. The early signs are hopeful, but it is still early days.”
Whitbread also published results for the year to the end of February 2018. Revenue rose 6.1% to £3.3bn, with pre-tax profit up 6.4% at £548m.
