Whitbread shares soared 19% in early morning trading on its surprise agreement to sell its Costa coffee chain to Coca-Cola for £3.9bn including debt.
The UK leisure group has been pressurised by activist investors - such as Elliott Advisors, which joined the shareholder register in April - to separate its business this year, prompting Whitbread to announce a demerger with Costa initially set to be listed as a separate business by 2020.
However, in a change of tack, the deal with Coca-Cola means Whitbread can now focus on the Premier Inn hotel business.
Costa was bought by Whitbread 23 years ago for £19m, and has since increased its chain from 39 outlets to over 2,400 in the UK and 1,400 in more than 30 international markets.
Chief executive Alison Brittain said the deal represented a "substantial premium" to what would have been achieved by demerging Costa.
Whitbread said a "significant majority" of the net cash from the deal, around £3.8bn, will be returned to shareholders, with proceeds also used to pay down debt, contribute to its pension fund and finance Premier Inn expansion plans.
By mid-morning Whitbread shares had seen a slight pullback to 4,663p up 16%.
Helal Miah, investment research analyst at The Share Centre, said Whitbread got "a great price" and is "a quicker and cleaner process than a demerger".
"The timing of the deal by Whitbread will be seen by many as being astute, given that Costa Coffee was bought for £19m 23 years ago and sold at what could be a peak in the cycle after a couple of decades of strong growth in coffee market and the rise of the coffee culture," Miah said.
"However, some others will say that Whitbread may be too premature in selling given that Costa Coffee in China is set to experience strong growth in the next few years."
He added: "For Coca-Cola, the group obviously see value in the deal given that they lack exposure to the coffee industry and should be much better at further expanding the Costa Coffee brand given its global distribution networks.
"Whitbread investors can additionally look forward to the possibility some of the proceeds from the sale return to them. It will also appease activist investors who jumped on-board over the last year and pushed for the split, ultimately earning them a healthy return on investment."
Following the jump in Whitbread's share price today Miah said the stock is unlikely to rise much further.
"We continue to recommend Whitbread as a ‘hold' for medium-risk investors seeking a balanced return and willing to accept a medium level of risk."
The news will be welcomed by Blue Whale chief investment officer Stephen Yiu, who has said in the past he wants Whitbread to generate cash by offloading their properties to external parties and focus on fee-generating activities. At the time of the demerger announcement Whitbread comprised 3% of the LF Blue Whale Growth fund.
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