Costa spin-off could lead to £3bn Whitbread windfall – and cost just £20m

Whitbread shareholders could snaffle a £3bn windfall if the firm spends just £20m spinning off Costa Coffee – a move one the world’s most famous activist hedge funds is clamouring for.

Elliott Advisors has built up a £430m position in Whitbread over the last year. A stock market disclosure late on Friday revealed it is now the FTSE 100 firm’s largest shareholder.

Set up by US billionaire Paul Singer, Elliott has a track record of agitating for change across some of the world’s biggest companies.

While on good terms with Whitbread’s management, it is understood the fund is keen for the company to be split in two. Formed of Premier Inn and Costa, Whitbread’s current market capitalisation of £7.2bn would see the creation of two separate firms worth an aggregate of £10bn.

Premier Inn’s market value would be in the region of £7.5bn, meaning it would retain a place in the FTSE 100, with Costa’s business worth around £2.5bn, City sources said.

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Four to five months

Costa’s simple corporate structure makes it the better of the two candidates to be demerged, a process which could be completed in as little as four to five months. Calculations suggest most of the £20m outlay would fund adviser fees.

Elliott most recently hit the headlines by publicly supporting Melrose Industries £8bn hostile takeover of GKN. Other high-profile battles include calling for Anheuser-Busch InBev’s to up its offer for SABMiller in 2016 and last year demanding an overhaul of the board of mining titan BHP Billiton.

Whitbread boss Alison Brittain has previously said she is “open-minded” to a splitting Whitbread, which has in the past owned Pizza Hut, Marriott Hotels and David Lloyd Leisure among a provide range of portfolio companies. But Brittain has also said now is not the right time for a spin-off of Costa.

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