Whitbread to spin off Costa coffee chain

Whitbread has announced plans to spin off its Costa coffee chain into a separate listed business within the next two years following activist pressure.

The company, which also released its preliminary results on Wednesday, said the demerger would be pursued "as fast as practical and appropriate to optimise value for shareholders".

Whitbread, which owns Premier Inn hotels and restaurant chains including Beefeater, said the demerger would provide shareholders with investment in "two distinct, focused and market-leading businesses".

Chairman Adam Crozier said: "The Whitbread board has conducted regular and rigorous reviews of its strategy and structure for a number of years. For some time, the board has been of the view that at the right time Premier Inn and Costa should be independent companies. A separation will provide enhanced focus for each business and give shareholders an investment in two high-quality businesses.

"We will ensure that prior to separation each business is sufficiently developed and well-positioned to take advantage of the structural growth opportunities available to them in the UK and internationally. Announcing our intention now provides clarity of our strategic direction to our shareholders, team members and other stakeholders."

Earlier this month, activist investor Elliott Advisors became Whitbread's biggest shareholder and began piling pressure on the company to spin Costa off.

Also on Wednesday, Whitbread reported a 6.7% jump in full-year statutory pre-tax profit to £590m, with underlying pre-tax profit up 4.5% to £591m and revenue 6.1% higher at £3.3bn.

Chief executive Alison Brittain said: "Given the progress Whitbread is making, we are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies."

Canaccord Genuity said: "Whitbread's in-line prelims are completely overshadowed by the announcement of the planned demerger of Costa Coffee, saying the timing is now right. We agree. There are no synergies from keeping the businesses together and the two management teams should thrive as separate entities. And if they slip-up, we think there will be plenty of suitors to underpin the respective share prices.

"We already expect the management teams of IHG, Marriott, and Accor to be doing their homework. We remain buyers with a 4,500p target price. Our analysis suggests a potential break-up price of 5,200p."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Coffee shops and hotel rooms don’t make natural bedfellows, so splitting off Costa Coffee from Premier Inn makes sense for Whitbread. The break-up will provide each of the two emerging companies with greater strategic focus on their own goals, and will allow investors to choose which of the two distinct brands they actually want exposure to.

"There are issues to addressed, such as the pension scheme and the process of setting up a separate board, though the 24 month target for the demerger allows plenty of time for these matters to be resolved. The split could also ultimately lead to a shake-up of the top brass at Whitbread, unless the executives are willing to accept the reduced earnings potential running a smaller company probably entails."

At 0910 BST, the shares were down 0.9% to 4,148p.