Premier Inn could become a bid target after its sister chain Costa Coffee was sold to US drinks giant Coca-Cola, according to City sources.
Investors were counting their cash this weekend after the surprise £3.9billion ‘knockout’ deal that is also likely to see executives receive a bonus windfall.
The swoop is part of a £100billion targeting of UK businesses over the past two years following a slump in sterling that has made acquisitions cheaper for overseas predators.
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The sale on Friday of 2,422-outlet Costa will leave Premier Inn as the only business left in the Whitbread group which, sources said, make a takeover simpler and more likely.
One City investor said: ‘Friday was phase one of the Whitbread story. Our thesis for this business has always been that Premier is one of the best hotel businesses in the world currently being valued as if it was one of the worst.
‘With the board now talking about focusing more on maximising the value of the hotel chain, some people are already starting to talk about Premier Inn being a bid target in itself.’
The Costa acquisition is the latest mega sale of a UK firm. Others have included the controversial sale of technology giant Arm Holdings for £24 billion to Japanese firm Softbank which took place within weeks of the Brexit vote in 2016. That was followed by a £46 billion pursuit of pharmaceutical group Shire by Japanese-based Takeda.
There is an ongoing £26 billion swoop on Sky by two of America’s biggest media giants. And there was the hostile £115 billion bid for Unilever by US-based Kraft, which failed at the beginning of last year.
Liberal Democrat leader Sir Vince Cable told The Mail on Sunday that there had been a devaluation of the pound since the Brexit vote in 2016, making British businesses cheaper to foreign buyers.
He added: ‘The attempt on Unilever was a classic case in point – almost entirely exchange rate related.
‘This is one of the most worrying aspects of a devaluation of the pound for businesses.
‘The fall in sterling makes company assets much cheaper and large numbers of British companies have found themselves vulnerable, not because of underperformance, but because of devaluation.’
Premier Inn: Costa Coffee’s sister chain was sold to US drinks giant Coca-Cola, prompting analysts to warn that the hotel chain could become the next bid target
Sir Vince said Britain’s tax revenues were also hit by the way in which international companies return their accounts and pay their taxes in the UK. ‘It is a potential loss when the ownership of companies goes offshore in this way,’ he added.
Whitbread shares rose 14 per cent on the news of the Costa deal, valuing the company at £8.4 billion. Former brewer Whitbread bought Costa for £19 million in 1995 from founders Sergio and Bruno Costa. At the time, it had just 39 outlets.
As well as its 2,422 coffee shops in the UK, it has 1,400 outlets in 31 overseas markets and 8,237 vending machines worldwide operating as Costa Express.
City investors welcomed the deal. One described it as a ‘knockout bid’ that was ‘ambitious and exciting’ and would benefit Premier, Costa and Coca-Cola. It follows political action on sugary drinks and energy drinks. Joshua Mahony, market analyst at IG Group, said: ‘The sale to Coca-Cola could prove a shrewd move at a time where we are seeing the Government cracking down on high caffeine products.
‘There is little reason to believe that we will see a crackdown on coffee, yet there is a feeling the public is becoming aware of the negative effects of high caffeine intake.’
But the coffee chain is set to benefit under its new owners with access to the fizzy drinks giant’s vast global network.
Fraser McKevitt, head of retail at Kantar Worldpanel, said the ‘out-of-home’ coffee market is worth £6.3 billion a year in Britain and growing by 4.3 per cent annually.
He added: ‘Whitbread looks to have secured a valuable deal for its shareholders. But it is not the only winner. Coca-Cola doesn’t currently have any coffee outlets and this is an opportunity to plug that gap and tap into this growing market.
‘By acquiring a favourite out-of-home coffee brand, Coca-Cola is leapfrogging its way to having a substantial hot drinks offer and bolting on the UK’s favourite coffee brand.
‘It also offers intriguing possibilities for the Costa name to appear in new formats, such as chilled variants, and reach a wider audience through Coca-Cola’s well-established distribution network.’
Whitbread chief Alison Brittain could double her £2.3 million salary this year in bonuses linked to the deal.
Whitbread chief Alison Brittain could double her £2.3 million salary this year in bonuses linked to the deal
Earlier this year she suggested Whitbread might demerge Costa – listing the coffee chain separately on the stock exchange. This idea came after pressure from activist investors seeking better returns.
After the Costa sale, one of those activists, US giant Elliott Advisors, said on Friday it ‘congratulates the board of Whitbread on this proposed transaction and looks forward to continuing to engage with them to maximise the value of the remaining businesses’.
Gavin Oldham, chairman of The Share Centre, said it was a shame that private investors could not invest in Costa as a separate company.
He tweeted: ‘Costa would have been a great opportunity for a retail flotation to its customers, and may well have achieved a similar valuation. I’m disappointed to see yet another sell-out to the buy-out giants: it continually erodes democratic capitalism.’