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Activists forced early Costa demerger announcement as Whitbread split set for 2020

Whitbread has been under pressure to confirm a spin off of Costa Coffee - Chris Ratcliffe
Whitbread has been under pressure to confirm a spin off of Costa Coffee - Chris Ratcliffe

Whitbread boss Alison Brittain has conceded the noise created by its two activist investors forced it to reveal its plans for a demerger of the Costa Coffee chain earlier than it wanted.

A total of 10pc of the 250-year-old company's shares are in the hands of Sachem Head and Elliott Advisors, and the pair's presence had whipped up talk that Ms Brittain would have to act on plans to spin out Costa sooner than planned.

The chief executive refuted the suggestion the idea and timing of the split had been forced upon her, just when the announcement was made.

"It's not normal to announce something two years away and ordinarily we would have announced it next year for it to take effect in 2020," she said.

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"But we felt the need, given the noise [created by the presence of activist investors], to bring clarity to the situation. Once you start getting asked by your own teams 'what is happening', you know you need to give people clarity."

Ms Brittain said some major projects still needed to be completed, such as the move to a new finance and procurement IT system, and this was why the demerger would not happen until 2020.

"There has been some suggestion that a demerger is really easy, like turning a light switch on, but that's just not true," she said. "I cannot think of a demerger that has happened in less than 12 months and most take two or three years."

The Whitbread boss said she had worked on a demerger before at Lloyds and so had a "real sense of what it will take to get the organisation ready for this".

But she said she had not yet considered her future once Whitbread only owns Premier Inn, adding: "I've not thought about it beyond the demerger but I'm sure I will dwell on it."

The demerger proposal at present will mean existing Whitbread investors will see each of their shares split into two - one representing each Costa and Premier Inn - and then they will get the opportunity to decide how much they want to keep invested in each brand.

The change comes shortly after the arrival of new chairman Adam Crozier, who oversaw wide-ranging reforms at both ITV and Royal Mail.

Adam Crozier's in-tray | The first tasks for Whitbread's new chairman
Adam Crozier's in-tray | The first tasks for Whitbread's new chairman

Shares in Whitbread fell 1.3pc to £41.31 on the back of the announcement, which was accompanied by its annual results.

The company revealed a 6pc growth in pre-tax profits to £548m and 6.5pc growth in revenues to £3.3bn in the year to March 1, buoyed by a surge in London hotel bookings and stronger international sales at Costa.

 

The coffee chain’s UK operating profits were down 2pc at £151m as it battled against rising costs, but it benefitted from soaring sales through its Costa Express vending machines, which churned out £210m of revenue.

Ms Brittain acknowledged the continued tough conditions on the UK high streets due to lower footfall and consumers being more careful about what they spend had pushed like-for-like sales in its stores down 0.4pc compared to a 2pc rise in the prior year.

Analysts at Credit Suisse previously estimated that a split could boost the companies’ combined by value by as much as 40pc.

Greg Johnson, an analyst at Shore Capital, said a demerger would give their two management teams “greater operational focus and afford investors greater clarity on profit and cash generation”.

Having risen around 15pc since the start of April amid growing speculation Whitbread was planning to announce the split, the company's shares were up 1.8pc at £47.60 in early trade.  

Whitbread, which began life as a brewery, has a history of selling off its brands. It previously owned the UK franchise of restaurant chain TGI Friday’s, David Lloyd health clubs, 46 Marriott hotels, the off-licence chain Threshers and a large stake in soft drink maker Britvic.