Whitbread has announced plans to demerge Costa Coffee from Premier Inn, following the recent arrival of activist investors Elliott Advisors on the shareholder register.
The group said the break up, which will see Costa listed separately on the stock market, will be completed in two years. Whitbread will remain the owner and operator of Premier Inn.
It comes after Elliott revealed only a few weeks ago it had acquired a 6 per cent stake in the group, becoming the largest shareholder. The US hedge fund has been pushing for a break-up in the belief this would increase share prices.
Break up: Costa Coffee will be listed separately on the stock market
Shares in the FTSE 100 listed company fell 1.5 per cent, or 64p, to 4,122p in morning trading.
Whitbread chief executive Alison Brittain said the separation will create ‘long-term value’ for stakeholders.
She added: ‘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.
‘The board, therefore, believes that it is in the best long-term interests of Whitbread’s many stakeholders to separate Premier Inn and Costa, via a demerger of Costa.’
Costa is thought to be worth between £2billion and £3billion on a standalone basis while Premier Inn is valued at up to £8billion.
Alongside the announcement, Whitbread reported annual sales growth of 6.1 per cent to £3.3billion while pre-tax profits rose 6.4 per cent to £548million.
Annual figures also showed that Costa booked a 1.2 per cent rise in like for like sales over the year, ahead of expectations.
Withbread chief executive Alison Brittain said the separation will create ‘long-term value’ for stakeholders
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘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.
He also noted that the split could lead to a shake-up of the top brass at Whitbread and added: ‘Elliott and Sachem Head will no doubt still try to influence proceedings, particularly in respect of the timing of the split, as two years is longer than they would have wanted for the deal to be completed.
‘Indeed the fairly lengthy timeline looks very much like Whitbread’s attempt to maintain control of proceedings. In essence management has agreed to go with the flow, but isn’t relinquishing command of the vessel.’