Whitbread's Sale of Costa to Coca-Cola Vindicates Activist Investors
August 31 2018 - 8:40AM
Dow Jones News
By Adam Clark
Shares in Whitbread PLC (WTB.LN) surged nearly 20% in early
trade Friday after the company announced the 3.9 billion pound
($5.1 billion) sale of Costa Coffee to Coca-Cola Co. (KO), marking
the latest in a series of victories for activist investors in the
U.K.
Analysts at investment platform AJ Bell said the deal represents
a 575 pence-a-share uplift on previous valuations of Costa,
vindicating the arguments of the activist investors who pushed for
the separation of the U.K.'s largest coffee chain.
AJ Bell said the sale follows similar activist successes in
forcing disposals at mining giant BHP Billiton PLC (BLT.LN) and
logistics company John Menzies PLC (MNZS.LN).
"Firms where share-price performance has been weak, operational
performance sub-optimal relative to peers or the business structure
is complex could come under greater scrutiny," AJ Bell said.
The sale comes unexpectedly quickly after Whitbread, which also
owns the Premier Inn budget hotel chain, first flagged a possible
Costa spin-off. It said Friday that the sale was in the best
interest of shareholders as it provided a substantial premium to
the value of a separately listed company and accelerated the
realization of cash returns.
Pressure built on Whitbread management after U.S. hedge fund
Sachem Head disclosed a stake in the company in December, followed
by Elliott Management Corp. in April. Both investors reportedly
pushed Whitbread to split Costa from Premier Inn.
At the end of April, Whitbread said it was committed to spinning
off Costa into a separate listed entity but only by 2020, sparking
criticism from investors. Whitbread Chief Executive Alison Brittain
said Friday that Coca-Cola first made a formal approach for Costa
in June, although its interest predated the demerger
announcement.
Whitbread said Friday the sale would free up resources enabling
it to expand Premier Inn in the U.K. and Germany. However, it plans
to return most of the money from the sale to shareholders. It
didn't say how much would be returned or how it will be done, but
said further information will be provided in due course.
"Premier Inn, the U.K.'s leading hotel business, will continue
to develop its highly successful and unique business model, with
even greater focus and financial investment," Ms. Brittain
said.
Sources familiar with the situation said Elliott now plans to
push Whitbread to consider strategic options for Premier Inn, which
is valued at a discount to global hotel chain peers.
"Premier Inn should not exist as a standalone company in our
view, and should be swallowed up by the likes of IHG, Marriott or
Accor, operating in concert with a property investor to split the
property from operations," said analysts at Canaccord Genuity in a
research note.
Whitbread shares at 1251 GMT were up 665 pence at 4,685 pence,
having peaked at 4,800 pence earlier in the session.
Whitbread bought Costa in 1995 for GBP19 million, when it only
had 39 shops. It now has over 2,400 coffee shops in the U.K. and
over 1,400 stores in more than 30 international markets. Costa
generated revenue of GBP1.29 billion in its latest fiscal year
which ended on March 1.
The sale, which is conditional upon Whitbread shareholder and
other regulatory approvals, is expected to complete in the first
half of next year.
Write to Adam Clark at adam.clark@dowjones.com;
@AdamDowJones
(END) Dow Jones Newswires
August 31, 2018 09:25 ET (13:25 GMT)
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