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Tomorrow shareholders in Whitbread get to vote  on the proposed sales of Costa Coffee for £3.9 billion in cash to Coca Cola. This will be at a general meeting to be held at the offices of investment bank Goldman Sachs on Wednesday afternoon. Whitbread’s board is recommending that the offer from Coca Cola be accepted. Whitbread says that it intends to return “a significant majority” of the deal’s proceeds to investors, who will also be left with their shares in the company.

The deal was announced on 31 August, prompting a rise in Whitbread shares. Analysts had been valuing Costa at around 12x EBITDA, or £15.50 per share. The proposed £3.9 billion sale price equates to £21.25 a share, which is a substantial uplift.

Costa Coffee sale requires CMA approval

Assuming the deal is approved, the transaction will still need to go through the Competition and Markets Authority before its completion. Whitbread says it currently expects the sale to take place in the first half of next year. Approval of the deal with be a victory for hedge fund Elliott, which had been campaigning hard for the break up.

But the other question surrounding the Costa sale is how influential activist investors are within UK blue chip stocks. Activist hedge funds have played a big role in the US stock market for years, but have recently been spreading their wings and going after European board rooms. The UK has been a slightly easier target than some other European countries which have less tolerance for this brand of free wheeling capitalism, although even some German corporates have had to battle with hedge fund interference.

Whitbread: victory for activist hedge funds?

Activists like to build stakes in companies they perceive to be under-performing, identify changes and then try to rally shareholder support for these same changes. They can be successful in lighting a fire under otherwise moribund shareholders who tend to sit on blue chip stocks, routinely accepting dividends.

It is worth keeping in mind which other big stocks have a significant activist presence: Barclays, Micro Focus, Hammerson, Smith & Nephew and Premier Foods all have hedge funds on their shareholder register with a reputation for shaking things up.

From the perspective of Whitbread shares, Elliott seems to have had a positive impact: following announcement of the sale, Whitbread shares jumped from £40 to around £47. They have trailed off recently, testing the £45 mark, but buying of the stock has picked up significantly in recent days. Whitbread opened at £45.63 on Monday morning, and was close to £46 in approaching lunchtime.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.


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