Hedge fund Elliott adds to calls for Whitbread to spin off Costa
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 speculation 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 break-up 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 American-style drive-through coffee outlets.
