Corvex pushes Whitbread to pursue sale

The activist criticized Whitbread's expansion plan amid concerns over share underperformance and a valuation gap.

New York-based activist investor Corvex Management ​has called on Whitbread to pursue a sale, threatening to nominate a slate of directors to the board if the group refused to act.

In a Monday open letter, the 7% shareholder argued that significant stock underperformance and an "unacceptable" discount to intrinsic value have gotten the Premier-Inn owner to a point where "the only credible path to unlocking... value is a sale."

Whitbread is operating an "Accelerated Growth Plan" to create around 3,500 additional Premier Inn rooms by converting underperforming restaurant space, extending existing hotel sites, and increasing room density. This offers higher-returns than simply acquiring more hotels outright because the company already owns the sites it plans on improving.

However, in it's latest five-year plan, announced in April, Whitbread revealed it also wants to add around 14,000 "non-AGP" rooms to its portfolio through the acquisition of new hotels. Rather than funding that expansion from owned property and balance sheet capacity, the company plans to finance it by selling freehold hotels and leasing them back, effectively unlocking immediate cash.

The April plan, also warned that 3,800 ​jobs would ⁠be cut as the company seeks to manage costs by shutting its 197 remaining branded restaurants and selling more meals at its hotels.

In its Monday letter, Corvex argued that leveraging the company's "most valuable" freehold assets to fund such "highly uncertain growth investments" was too risky, and said that "neither market conditions nor the company's underlying performance [justified] such expansion."

Indeed, two weeks on from the announcement of Whitbread's new plan, the stock remains at around GBP23, a 13-year low.

"Whitbread's persistent structural complexity and chronic misallocation of capital have delivered double-digit negative returns across every reasonable investment horizon," Corvex said, repeating its call for a sale and arguing that instead of pursuing its non-AGP expansion and sale-leaseback transactions, the company should return cash to shareholders through a share repurchase program.

"Should the board prove unwilling to publicly commit to a formal sale process, Corvex is fully prepared to nominate a new slate of directors to ensure such a process is properly considered alongside the implementation of a clearer, more shareholder-minded capital allocation framework," the activist concluded.

In a statement made to Reuters, a spokesperson for Whitbread said it remained committed to the five-year plan and to "driving stronger returns for all our shareholders."

Corvex Management, led by Keith Meister, a protégé of veteran activist investor Carl Icahn, first announced an investment in Whitbread last December.

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