What's going on?
Shares of Britain’s Whitbread, owner of Costa Coffee and Premier Inn, jumped over 7% on Monday after Elliott Advisors, the US activist investor, revealed it had become the company’s largest shareholder.
What does this mean?
Whitbread, formerly a big brewing company, owns a collection of businesses – the two largest of which are Costa (a big rival to Starbucks and other coffee chains in the UK) and Premier Inn, a budget hotel chain.
According to the Financial Times, Elliott wants Whitbread to split up the company and make the two divisions entirely separate entities. It’s not the first activist fund to buy shares and push for this change at Whitbread – but Elliott’s revelation (it has a history of successful investor activism) certainly got the market’s attention.
Why should I care?
For markets: Investors tend to prefer “pure-play” investments.
Elliott’s logic appears to be that Whitbread is less valuable than the sum of its parts. The argument is that by separating its businesses, investors can choose which one(s) they want to invest in. Both should, in theory, subsequently become more popular with investors – and thus more valuable.
The bigger picture: Elliott Advisors holds considerable sway over many of the world’s biggest companies.
Wherever there’s a takeover or turnaround opportunity, there’s a decent chance that Elliott isn’t far away. It was instrumental in forcing the brewer AB InBev to pay a higher price than it initially offered for SABMiller; just recently, it helped force Qualcomm agree to increase its offer for rival chipmaker NXP. Elliott is also currently pushing mining giant BHP Billiton to change its corporate structure, and is involved in a swathe of other potential deals, including a battle for control of Telecom Italia with French media giant Vivendi. CEOs and board members at virtually all major companies are compelled to plan for a potential visit from the Elliott suits (among other big activist investors) when plotting out their strategies.