Whitbread is to spin-off its Costa coffee empire from its hotel and other interests following pressure from shareholders.
The company said Costa would be listed as a separate business within two years under its plans which were announced after so-called activist investors clamoured for greater value from their holdings.
It emerged earlier this month that Elliott Advisors had become Whitbread’s largest shareholder and was seeking the so-called demerger on the grounds it could potentially value separated firms at a combined £10bn as opposed to the current £7.7bn within the Whitbread stable.
It was supported by at least one other major shareholder.
Whitbread said it would remain the owner of its other current brands, spearheaded by the Premier Inn hotel chain.
Chief executive, Alison Brittain, said: “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.
“The management team and I are excited that the strategy we are executing will give us the opportunity to create two high-quality independent businesses that will create long-term value for our stakeholders.”
The announcement was made alongside Whitbread’s annual results which showed a 6.4% rise in pre-tax profits to £548m on revenues of £3.3bn – a rise of just over 6% on 2016.
The company said “disciplined cost management” had helped offset more challenging economic conditions while it expanded Premier Inn’s interests in Germany and Costa’s in China.
Ms Brittain sounded a more cautious note on the company’s outlook – particularly in the UK where retailers and the wider consumer-focused sector has endured tougher times because of a Brexit-linked squeeze on household finances.
She said: “Given recent economic and industry data, we do remain cautious on the consumer environment, especially on the high street, which we expect to remain challenging in the near term.
“The combination of our commitment to the investment programme and the current UK consumer environment naturally means our near-term profit growth may be lower than in previous years.
“However, I am confident that this strategy will deliver long-term sustainable growth in earnings and dividends, combined with good return on capital for years to come.”
Whitbread’s shares – up almost 5% in the year to date – rose 3% in early trading before settling about 1% higher at £41.79 per share.
Greg Johnson, an equity research analyst at Shore Capital, said of the potential valuations post demerger: “We value Costa at between £1.9bn-£2.3bn (or £10-13 per Whitbread share).”
He saw fair value for Whitbread of around £46 per share.
“We therefore continue to view upside from the current level of £42 per share.
“However, to get a material uplift beyond this valuation , in our view, requires either a significant reappraisal of the Costa opportunity or a more aggressive position on the property assets.
“We have a BUY stance on Whitbread,” he concluded.
From – SkyNews