Whitbread to Spin Off Costa Coffee, Bowing to Activists

The split will be done as quickly as possible and should be completed in 24 months, the Dunstable, England-based company said Wednesday in a statement. Whitbread will continue to own Premier Inn, the company said.

“For some time, the board has been of the view that at the right time Premier Inn and Costa should be independent companies,” Chairman Adam Crozier said in the statement. “A separation will provide enhanced focus for each business and give shareholders an investment in two high-quality businesses.”

Whitbread shares rose as much as 3.7 percent to 4,340 pence in early London trading.

During Chief Executive Officer Alison Brittain’s more than two years at the helm, the company has shrunk or exited ventures in India, Thailand and Singapore while focusing on fast-growing markets such as China. The stock price has been boosted by U.S. activist investors Sachem Head and Elliott Management Corp. buying stakes in the company. Sachem founder Scott Ferguson said he wanted to see the company spin off Costa, while Elliott presented management with a plan for a demerger, according to a person familiar with the matter.

Whitbread’s Costa business could be valued at 2.39 billion pounds ($3.3 billion), according to the median estimate of nine analysts surveyed by Bloomberg News.

The planned spinoff comes as competition among the world’s biggest coffee companies heats up, with Nestle SA acquiring Blue Bottle Coffee Inc. and JAB Holding Co. snapping up companies like Keurig Green Mountain and Peet’s Coffee.

Brittain denied that the intervention of activist investors had changed the board’s thinking on the merits of a demerger, but she conceded that they had expedited the company’s announcement.

“We are announcing the plans today because there has been a lot of noise and we wanted to give shareholders clarity on our future plans,” the CEO said on a call with reporters.

Elliott Stake

The announcement comes less than two weeks after Elliott announced it had acquired a stake in Whitbread.

The activist’s strategy has been “remarkably successful” and the announcement indicates that the company believes it has the requisite shareholder support for its plan, Richard Clarke, an analyst at Bernstein, said by email.

Also on Wednesday, Whitbread reported an adjusted pretax profit for the full year that beat the highest analyst estimate. Costa’s U.K. like-for-like sales fell by 0.4 percent last year, however, down from growth of 2 percent in the prior year. The company cited dwindling foot traffic on the U.K.’s downtown shopping streets, where many of its cafes are located.

Source: Bloomberg