Whitbread can give activist a hospitable welcome

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By Carol Ryan

(The author is a Reuters Breakingviews columnist.)

LONDON, Dec 7 (Reuters Breakingviews) - Whitbread can offer its new activist shareholder a hospitable welcome. Jitters about British consumer spending have pushed the stock market valuation of the owner of Premier Inn hotels and Costa Coffee outlets to a 10-year low. New York-based Sachem Head, which has taken a 3.4 percent stake, sees upside. Selling property or spinning off the coffee unit are among a menu of value-creating options.

A simple sum-of-the-parts analysis suggests there is value to be unlocked. Take the 631 million pounds of EBITDA that Morgan Stanley reckons Premier Inn will make in the financial year to February 2019 and pop it on a multiple of 11 times - a discount to more international competitors InterContinental Hotels and Accor. Now value the estimated 78 million pounds of EBITDA from Whitbread's pub network at 8 times, in line with other British groups, and the value of the two businesses already exceeds Whitbread's 7.2 billion pound market value. Even after adding 852 million pounds of net debt and deducting central costs, the implication is that investors are assigning little value to Costa, which is expected to generate 281 million pounds of EBITDA.

Even if newish CEO Alison Brittain resists a breakup, the group's property assets could prove attractive. Whitbread current owns around 64 percent of its hotels and leases the rest. Reducing that proportion to, say, half, could free up 900 million pounds which the company could hand back to shareholders, Credit Suisse analysts reckon. Whitbread has plenty of scope to ensure Sachem Head enjoys a pleasant stay.

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- Activist investor Sachem Head Capital Management on Dec. 6 disclosed it had taken a 3.4 percent stake in British hotel and coffee-chain group Whitbread. The U.S. hedge fund has already met the company's management, a person familiar with the matter told Reuters.

- Sachem Head was founded in 2013 by Scott Ferguson, a former partner at Bill Ackman's Pershing Square Capital Management.

- Whitbread'sLondon-listed shares closed up 8 percent at 3990 pence on Dec. 6. The shares were down 1 percent at 3953 pence by 0950 GMT on Dec. 7.

This article appears in: Stocks , World Markets , Economy
Referenced Symbols: ACCP ,

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