Both Sachem Head and Elliott are advocating for Whitbread to get more focused. The company operates a hotel business, Premier Inn hotels, and a coffee chain business, Costa Coffee, and few believe those two businesses add any value to each other. The activists appear to have different strategies for achieving that end goal though. Sachem Head reportedly prefers a sale of Costa Coffee while Elliott prefers a spinoff with a distribution of the coffee company to existing shareholders. According to Reuters, Elliott also does not support Whitbread adding additional debt or further share buybacks.
Mr. Singers estimates ‘the separate businesses would have a total market capitalization of 10 billion pounds ($14.3 billion)’ compared to about the current 7.2 billion pounds now. A recent piece by Bloomberg’s Gadfly seems to agree with that assessment:
Whitbread’s enterprise value is currently about 9 times forward Ebitda. Putting Premier Inn on 13 times and Costa on 11 times could generate an extra 3 billion pounds of value.
Easy peasy. Is it any wonder that people sometimes refer to finance as alchemy?
Bloomberg notes there are some challenges to the proposal including an underfunded pension. The breakup idea seems to be gaining traction though and analysts at Credit Suisse note ‘the addition of Elliott as the group’s largest shareholder will increase the likelihood of break-up but also believe there is much wider shareholder support for change’. Whitbread’s shareholders seem happy too as price has reacted positively to the news.
Ms. Brittain has not ruled out a breakup and has mentioned being open to shareholder ideas. It’s tough to bet against Elliott, but maybe Ms Brittain can figure out the secret behind the soccer ball? It should be interesting to watch how this unfolds.
Disclosure: Author holds no position in any stock mentioned.
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