Ruthless US hedge fund Elliott Advisors looks set to push for a spin-off of Costa Coffee after becoming the largest shareholder of its owner Whitbread.
The activist investor – run by feared Wall Street billionaire Paul Singer, 72 – is understood to believe as much as £3billion of value could be unlocked by listing the coffee chain separately.
Elliott has built up a six per cent shareholding in FTSE 100 listed Whitbread, giving it a stake worth about £430million in the £7.2billion group which also owns Premier Inn.
The group’s share price jumped by 255p or 6.5 per cent to 4,190p a share by lunchtime after news of Elliott’s increased stake spread.
Mounting pressure: US hedge fund Elliott Advisors is known for using bare-knuckle tactics
Elliott’s intervention is likely to put pressure on Whitbread boss Alison Brittain, 53, who has already faced a number of calls for the business to be broken up.
Elliott is known for using bare-knuckle tactics to get its own way at companies it invests in, and once infamously had an Argentinian naval ship seized during a dispute over government debt payments.
The US hedge fund is thought to have made around £26million in the past few weeks from asset-stripper Melrose’s controversial takeover of British engineer GKN. And last week it cashed in £24million after dumping its entire holding in retailer Game Digital while snapping up a stake in software firm Micro Focus.
Whitbread’s business model has often confused investors, who do not see its main operations – hotels and coffee shops – as being natural bedfellows. While its individual businesses are performing steadily, its share price has stayed relatively flat over the past two years, closing at 3,935p on Friday.
Whitbread’s portfolio has gradually shrunk from a leisure giant owning breweries, pubs, gyms, hotels and restaurants, to its main operations which now include Premier Inn, Costa and the Brewers Fayre and Beefeater restaurant chains.
Businesses it has disposed of over the years include Robinsons squash owner Britvic, Marriott hotels and clubs in the UK, Pizza Hut and off-licence chain Threshers.
Elliott’s swoop on Whitbread comes just months after fellow US hedge fund Sachem Head also took a stake and sparked speculation it would push the group to split.
Rumours of a spin-off have been brewing since October when Credit Suisse suggested that Costa would deliver better returns for shareholders as a separate firm.
Russ Mould, investment director at broker AJ Bell, said: ‘Whitbread’s shares are still trading some way below their peak of nearly £55, reached in 2015, and the activists clearly believe there is value to be unlocked – it is just a matter of how they feel this can be achieved and whether chief executive Alison Brittain agrees with them or not.’
Brittain has refused to rule out a break-up of the business, saying she would continue to look at how the group is structured. ‘We remain entirely open-minded about the structure of the business and are fully committed to reviewing it on a regular basis at the board level,’ she said. Many analysts have said a split would be too complex but admit many shareholders are unhappy with the group’s performance.
The strength of Costa Coffee’s business appeared to waver earlier this year as it reported a 1.5 per cent drop in like-for-like sales in the 13 weeks to the end of November.
Brittain, who blamed the slowdown on customers moving from High Street to online shopping, said Costa would focus on drive-throughs and train stations.
Whitbread and Elliott both declined to comment last night.