Whitbread Faces Investor Pressure for Strategic Split Amid Rising Costs

Whitbread, owner of the Premier Inn chain, is under mounting pressure to separate its business following a significant move by US activist investor Corvex Management. Corvex has recently revealed a 6 per cent stake in Whitbread and published an open letter urging the FTSE 100 group to review its core strategy and capital allocation priorities.

This intervention comes shortly after Whitbread disclosed it would encounter an annual increase in business rates of up to £50 million from April next year, a consequence of the changes introduced in the recent budget by Chancellor Rachel Reeves. Corvex is advocating for Whitbread to reconsider its sale-and-leaseback approach in relation to its hotel properties. Sources aligned with Corvex suggest that splitting Whitbread into separately managed operating and property businesses might emulate successful strategies adopted by other major hotel groups globally.

Some major investors share Corvex’s viewpoint, suggesting that a fundamental decision must be made regarding whether the company should continue operating as both property owner and hotel operator. These stakeholders believe management now has an opportunity for a strategic reset. Not all investors, however, support immediate structural change. One sizable institutional shareholder encouraged the board to avoid a rapid reaction to the business rates increase, expressing hope that some costs could yet be reduced through negotiations with government authorities.

The debate centres on whether Whitbread benefits from maintaining integrated ownership and operations or whether it should follow the popular asset-light model. Although asset-light and Opco-Propco structures have worked for hotel groups with multiple brands and international reach, Whitbread’s main focus, Premier Inn, remains concentrated in the UK with developing expansion in Germany.

In recent years, Whitbread has pursued a five-year plan targeting enhanced profitability and has returned £1.5 billion to shareholders through dividends and buy-backs since February 2022. The company is valued at £4.3 billion on the London Stock Exchange, but its share price has declined by nearly 15 per cent this year. Despite calls for change, a company representative reiterated confidence in Whitbread’s current strategy, highlighting the benefits of its flexible property ownership model. Whitbread confirmed that it continues to explore ways to drive margins and shareholder returns in light of the UK’s altered fiscal environment.

Adopting a split operational and property structure, as seen with Accor, IHG and Hilton, can allow for clearer focus in trading and property management, provide tax advantages and broaden investor appeal. The outcome of Whitbread’s review and its chosen path may signal further transformation within the UK’s hospitality sector.