Activist will push for Whitbread split, investor predicts

An activist investor that has built a position in Premier Inn and Costa Coffee owner Whitbread is likely to push for a break-up, a shareholder has predicted.
Sachem Head, a New York-based fund, has not stated what it will do with its stake in the FTSE 100 company but top 20 investor Old Mutual Global Investors (OMGI) said it believes the new shareholder will push for change.
“I imagine they will be looking at a break-up,” fund manager Ed Meier said. “To us, it is one of the more obvious break-ups on the market to be honest.”
Sachem Head is run by Scott Ferguson, a former partner at Bill Ackman’s Pershing Square Capital Management hedge fund, and while the majority of its investments are just buy-and-hold share purchases it does have the mandate to take an activist approach.
Mr Meier, who is part of well-known investor Richard Buxton’s UK equities team at OMGI, said the strength of the management teams at both Premier Inn and Costa Coffee “supports the case for a break-up” as each company on its own would be run by “high calibre people”.
Activist will push for Whitbread split, investor predicts

Costa Coffee managing director Dominic Paul
Mr Meier acknowledged timing would be key given Costa Coffee is battling tough conditions on the UK high street, which is weighing on performance even though its Express machines division and overseas plans are on track.
But he said the fact Whitbread had invested in Costa Coffee recently, including in new kitchen equipment and an updated food offering, could make it more attractive to a buyer.
He cited German-based JAB Coffee Holding as a possible suitor given it had been “buying almost anything coffee-related for the past few years”. JAB Coffee owns majority stakes in various American-focused coffee companies as well as international players Jacobs Douwe Egberts and Keurig Green Mountain.
Broker Shore Capital said its positive investment case on Whitbread had been “predicated on the potential to unlock the significant value within the group’s assets”.
whitbread shares
Greg Johnson, who monitors the company for Shore Capital, said Whitbread had generated ?289m from selling some of its Premier Inn hotels and then leasing them back.
He added that he expected the company to earn between ?100m-?150m a year by doing this more but questioned whether this might now be amplified.
“With approaching two-thirds of the hotel estate freehold, worth c?20-?27 per share, management could be more aggressive with the disposal programme,” Mr Johnson said.
“An alternative, and aggressive option management might entertain, is a spin-off of the property assets as a separate vehicle as seen elsewhere in the hotel sector.”
Mr Johnson said this strategy could see Whitbread’s shares worth around ?55 compared to ?39.26 presently.
Whitbread declined to comment.
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