Whitbread has raised pension mis selling concern to its investors after agreeing to sell Costa, the largest coffee chain in Britain to Coca-Cola for £3.9 billion. The leisure firm had only 39 outlets in 1995 when it decided to acquire Costa. Whitbread now has over 24,000 shops and it is planning to expand overseas. Whitbread now owns and operates the hotel business in Premier Inn and its shareholders have continued to pressure the senior executive to separate and list the coffee chain as a separate business.
The firm’s shares recorded a 20% increase but some of the shares were lost during the trading session. Alison Brittain, the Whitbread CEO observed that the selling decision will greatly benefit the firm’s shareholders and provide them with a unique opportunity to appreciate the strategic value of the Costa brands and its potential global growth and accelerate the income of the shareholders. Elliott Advisors, an Activist investor has been the biggest shareholder in the Costa Coffee since April this year has also asked for a demerger arguing that it could increase the value of the separate firms from the current combined value of £7.7 billion to £10 billion.
Nicholas Hyett, a financial expert from Hargreaves Lansdown pointed out that Whitbread investors will continue to express mixed opinions. The £3.9 billion is a slightly higher valuation and is better than what Costa could realise as an independent listed firm, enjoying higher earnings than even major players like Starbucks.
The global growth potential of the Costa brand, especially in China will make a section of current and potential investors unhappy because it has remained one of the top-selling brands from Whitbread. According to Neil Wilson, a financial specialist at Markets.com, the decision may also enter the firm in the long list of global pension mis selling claims. However, Wilson also reserves observations that the leisure firm may benefit from the new business shift and record rapid sale growth in its hotel and coffee chains.
Whitbread claims that it will utilise the finances to lower its debt, elevate its pension fund contributions and win back a substantial majority of critical stakeholders. The money will also help the leisure firm to expand its hotel business in Germany and Britain. Costa operates over 1,4000 shops in over 30 international markets and will help Coca-Cola to compete with other global giants like Starbucks and Nestle. It will be quite interesting to see whether the firm will benefit from the sale of Costa or contend with a pension mis selling claims.