There is no question what the biggest story is on the UK stock market right now as Coca-Cola swoops for Whitbread’s (WTB) Costa Coffee business in a £3.9bn deal. The shares surge to the top of the FTSE 100 leaderboard, up
Having proposed a spin-off under activist pressure in April 2018, Whitbread had said the process could take two years. Today’s deal offers a short-cut and at what most observers think is a very attractive price.
AN ATTRACTIVE OFFER
AJ Bell investment director Russ Mould says: ‘It equates to around 16.5 times last year's EBITDA (earnings before interest depreciation amortisation and tax) compared to the 15 times historic EBITDA multiple on which Starbuck's currently trades and the 15 times multiples paid by JAB when it acquired Pret A Manger for £1.5 billion earlier this year.
‘Analysts had been valuing Costa at around 12 times EBITDA or £15.50 per share.’
Coca-Cola appears willing to pay this price in order to secure
This looks a victory for activist funds Sachem Head and Elliott who had taken stakes with a view that Whitbread was undervalued relative to the sum of its parts.
WHAT HAPPENS TO THE REST OF WHITBREAD
Mould adds: ‘With the deal expected to go through in the first half of 2019, and most of the proceeds being returned to investors, the market will have an earlier than expected opportunity to assess the standalone merits of Whitbread's other core brand, Premier Inn.’
Canaccord Genuity analyst Nigel Parson doesn’t think Premier Inn will last long as an independent business.
‘Premier Inn should not exist as a stand-alone company, in our view, and should be swallowed up by the likes of IHG, Marriott or Accor operating in concert with a property investor to split the property from operations - one slip and it could be gone.’
