Corvex says sale the only "credible" path to unlock value at Whitbread

(Alliance News) - Corvex Management LP on Monday urged Premier Inn owner Whitbread PLC to put itself up for sale as it slammed its recently announced new 5-year strategic plan.

In a damning letter to Whitbread management, the New York-based activist hedge fund called the status quo "untenable" and said that the need to pursue "meaningful strategic and structural

reform had become unignorable".

As a result, Corvex, which holds an around 7% stake in Whitbread, said the only "credible" path to unlocking value at Whitbread is a sale of the company.

The FTSE 100 listing has "failed to act with the urgency and adaptability Whitbread shareholders – the true owners of the company – deserve," the letter added.

Corvex said the new strategic plan "doubled down on many of the core value-destructive components we opposed in the original plan."

Neither market conditions nor the company's underlying performance "justified" such

"ambitious" growth targets, with Whitbread selling its "most valuable freehold assets" to fund the "highly uncertain" growth investments, the letter continued.

In April, Dunstable, Bedfordshire-based hotel and restaurant operator Whitbread announced a new five-year plan, which it said will result in a "material step up in margins and returns".

The proposals included a reallocation of capital to fund a proposed extension of the 'Accelerating Growth Plan', first announced in April 2024.

This involves replacing all remaining branded restaurants, a reduced capital programme in the UK and Germany, higher cost savings and the sale of freehold properties.

By financial 2031, Whitbread said the plan will deliver GBP275 million of incremental adjusted pretax profit contribution, reduce net capex by GBP1 billion, with growth capex to be funded through the sale of GBP1.5 billion of freehold properties.

It will increase return on capital employed by 500 basis points, and generate GBP2 billion of free cash flow available for cash returns to shareholders, Whitbread added at the time.

Whitbread still plans to increase the number of hotel rooms it has open to 96,000 by financial 2031 from the current around 86,600, with a longer-term aspiration of 125,000 rooms.

But Corvex said the market has delivered its verdict on the plans, with Whitbread trading at a 13-year low and a fraction of Whitbread’s UK freehold asset value alone.

"Whitbread's persistent structural complexity and chronic misallocation of capital have delivered double-digit negative returns across every reasonable investment horizon – one, three, five, and ten years," the letter pointed out.

Corvex said it has raised these concerns "directly and repeatedly" with the board and management, yet "they have remained anchored to the status quo".

"The inevitable consequence is clear: absent transformative action, Whitbread's shares will continue to trade at a significant and unjustified discount to intrinsic value," Corvex said.

On Monday, shares in Whitbread traded 0.3% higher at 2,309.50 pence each in London but have fallen 19% in the last 12 months.

"It is imperative that the board immediately retains an independent investment bank and makes a public commitment to conduct a rigorous and comprehensive sale process, with the objective of maximizing value for all shareholders," Corvex said.

Whitbread should "immediately suspend" all non-'Accelerating Growth Plan' growth capital expenditure and all proposed sale-leaseback transactions, while any such process is ongoing, Corvex said.

"Otherwise, we believe these actions would permanently impair the optionality and asset base that a transaction would seek to monetize. In their place, the company's free cash flow should be returned to shareholders through an accelerated share repurchase program – a far more accretive use of capital at current valuations."

By Jeremy Cutler, Alliance News reporter

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