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whitbread/Costa

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Arborbridge
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whitbread/Costa

#163293

Postby Arborbridge » August 31st, 2018, 8:13 am

Costa to be bought out from Whitbread by Coca-cola.
I'm somewhat miffed that yet another good home grown enterprise has been lost to the Amercians. When they are not disrupting the highstreet, they are plundering our businesses - and note it was brought about by US disruptive investors.

I've not been able to find much news today about what the effect will be on shareholders, but I guess this will be revealed in time. One sincerely hopes there will be some benefit from losing this golden egg other than enrichment of the Directors.

Although Whitbread cannot be considered a HYP share at the moment, I bought it when the yield was just about satisfactory for the lower yield of the WyfHYP. Whether it will stay in the portfolio, we will have to see - there's no rush: I read that this could take two years to unravel.

Arb.

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Re: whitbread/Costa

#163295

Postby idpickering » August 31st, 2018, 8:23 am

Hopefully this RNS might enlighten you more Arb;

Proposed sale of Costa for £3.9 billion to The Coca-Cola Company

Transaction highlights

· Sale of Costa for an enterprise value of £3.9 billion, representing a multiple of 16.4x Costa FY18 EBITDA

· Recognises strategic value of Costa's brand strength, multi-channel presence and international growth potential

· Substantial premium to the value that would have been created through the previously announced demerger given the Coca-Cola system's global product, distribution and vending platform

· Transaction unanimously agreed by Whitbread Board to be in the best interests of shareholders

· Net cash proceeds expected to be approximately £3.8 billion at completion, after adjusting for estimated transaction costs and separation costs

· A significant majority of net cash proceeds intended to be returned to shareholders

· Whitbread will also reduce financial indebtedness and make a contribution to the pension fund, which will both provide headroom for further expansion of Premier Inn in the UK and Germany

· The Transaction is conditional upon agreement by Whitbread's shareholders and various other approvals, including anti-trust approvals, and is expected to complete in the first half of 2019

· Whitbread to focus on the attractive structural growth opportunities for its leading hotel business, Premier Inn, in the UK and Germany

https://www.investegate.co.uk/whitbread ... 00053701Z/
Last edited by idpickering on August 31st, 2018, 8:24 am, edited 1 time in total.

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Re: whitbread/Costa

#163296

Postby monabri » August 31st, 2018, 8:23 am

"Selling England by the ground"

Don't hold your breath re directors doing it for shareholder's interest though I share your cynacism!

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Re: whitbread/Costa

#163300

Postby scrumpyjack » August 31st, 2018, 8:41 am

I think you're being a bit hard on the Directors. Whitbread generally has been very very well run over the years. I bought a large holding at 707p many years ago, sold enough to cover my entire cost when they went over 5300p and am happy to stick with the hotel side once they've sold Costa.

As the announcement points out, they bought Costa in 1995 for 19m, so it's not bad that they've built it up to nearly 4,000m over the years.

The directors aren't like that greedy lot at Persimmon who has screwed hundreds of millions out of the business simply for being in the right place at the right time and reaping the rewards of the general surge in house prices, not for their own brilliance in building something from nothing.

Arborbridge
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Re: whitbread/Costa

#163301

Postby Arborbridge » August 31st, 2018, 8:51 am

idpickering wrote:Hopefully this RNS might enlighten you more Arb;

Proposed sale of Costa for £3.9 billion to The Coca-Cola Company




Thanks Ian - I couldn't find anything like that by googling.

My gut feeling is that the benefit to shareholders will be intangible, or sloped out over a long time so as to be un-noticeable.
That one off boost will vanish in a puff of smoke.
· A significant majority of net cash proceeds intended to be returned to shareholders
Nothing specific, and possibly (even probably) not a special dividend

Personally, that will probably spell the end of my going into Costa - along with Starbucks which I have boycotted for decades. I will find smaller coffee outlets to visit rather than tax dodgers. Actually, I do this now on going to small towns - always I look for the local guy trying to make good. Costa is for the city centre only because it is reliable in its offering.

Arb.
Last edited by Arborbridge on August 31st, 2018, 8:58 am, edited 1 time in total.

Gengulphus
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Re: whitbread/Costa

#163303

Postby Gengulphus » August 31st, 2018, 8:55 am

monabri wrote:"Selling England by the ground"

What are you quoting, please? Am asking because I don't recognise the phrase, an internet search leaves me no wiser, and I'm rather uncertain exactly what it's meant to imply. Knowing where it came from should help!

Gengulphus

Arborbridge
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Re: whitbread/Costa

#163304

Postby Arborbridge » August 31st, 2018, 8:56 am

scrumpyjack wrote:I think you're being a bit hard on the Directors. Whitbread generally has been very very well run over the years. I bought a large holding at 707p many years ago, sold enough to cover my entire cost when they went over 5300p and am happy to stick with the hotel side once they've sold Costa.

As the announcement points out, they bought Costa in 1995 for 19m, so it's not bad that they've built it up to nearly 4,000m over the years.

The directors aren't like that greedy lot at Persimmon who has screwed hundreds of millions out of the business simply for being in the right place at the right time and reaping the rewards of the general surge in house prices, not for their own brilliance in building something from nothing.


Maybe. I'm not saying they haven't done a good job, but handing what was a bit of a jewel in the crown over, sticks in the craw. If it's so damn good, hang on to it - or a least let the shareholders have a stake instead of whipping it away from us. No long ago, it was said that the main reason for owning WTB was to hold Costa - now the family silver has been plundered.
It rather reminds me of Pearsons selling off all the best bits.

monabri
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Re: whitbread/Costa

#163308

Postby monabri » August 31st, 2018, 9:01 am

Gengulphus wrote:
monabri wrote:"Selling England by the ground"

What are you quoting, please? Am asking because I don't recognise the phrase, an internet search leaves me no wiser, and I'm rather uncertain exactly what it's meant to imply. Knowing where it came from should help!

Gengulphus



It's a play on words from an album (released 1973) by Genesis ..."Selling England by the pound".

Coffee, ground....I'll get my coat :)

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Re: whitbread/Costa

#163309

Postby scrumpyjack » August 31st, 2018, 9:05 am

They have a very good track record of getting out of businesses at exactly the right time. They got out of brewing / pubs, bought David Lloyds leisure centres and made a fortune on that before selling out just in time, then moving on to modern budget hotels and Costa coffee.

Costa has certainly been seen as going ex growth, which is why the share price fell back from over 5300p down to 3000p. Coffee shops are ten a penny and with very few barriers to entry. No I'm quite happy for them to sell it off at a bumper price, return half the proceeds to shareholders and reinvest the balance in building up the hotels business. They seem to be doing very well at this and to have the right formula. The success of Costa was down to getting the formula right and then replicating it. They were reaching a dead end with that business, so move on.

richfool
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Re: whitbread/Costa

#163314

Postby richfool » August 31st, 2018, 9:17 am

Yes I would agree with Scrumpyjack's points.

I felt "trouble was brewing", the market is getting "frothy", :) - in that Costa have saturated the market, their coffee was over-priced, coffee shops are springing up everywhere. In fact 6 months ago, I bought myself a coffee machine and make my own and now drink it at home. It saves me 6 (days) x £2.50 = £15 per week x say 50 weeks = £750 pa. (some shops are charging £2.90). Double that for a couple.

So maybe a good time for Whitbread to offload Costa.

BBC News item:
https://www.bbc.co.uk/news/business-45365893

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Re: whitbread/Costa

#163322

Postby Lootman » August 31st, 2018, 9:42 am

monabri wrote:
Gengulphus wrote:
monabri wrote:"Selling England by the ground"

What are you quoting, please? Am asking because I don't recognise the phrase, an internet search leaves me no wiser, and I'm rather uncertain exactly what it's meant to imply. Knowing where it came from should help!

It's a play on words from an album (released 1973) by Genesis ..."Selling England by the pound".

Coffee, ground....I'll get my coat :)

That exchange is a good example of how not everything knowable is on the internet. I have discussions with my kids like that, where I will assert something, then they look it up "on the internet" and can't find it. They claim therefore that it cannot be true, to which I reply that "not all that is known is on the internet".

Or perhaps it is a good example of how computers and the internet are great for linear thinking but not so hot for right-brained and lateral thinking. And why computer-generated jokes are so bad.

On topic, I think it's a bit silly complaining about UK businesses being sold to the US when UK companies routinely buy US companies, including high-profile names like Brooks Bros, Amoco, Burger King, Lehman and so on.

UncleEbenezer
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Re: whitbread/Costa

#163324

Postby UncleEbenezer » August 31st, 2018, 9:44 am

richfool wrote:Yes I would agree with Scrumpyjack's points.

I felt "trouble was brewing", the market is getting "frothy", :) - in that Costa have saturated the market, their coffee was over-priced, coffee shops are springing up everywhere. In fact 6 months ago, I bought myself a coffee machine and make my own and now drink it at home. It saves me 6 (days) x £2.50 = £15 per week x say 50 weeks = £750 pa. (some shops are charging £2.90). Double that for a couple.

So maybe a good time for Whitbread to offload Costa.

BBC News item:
https://www.bbc.co.uk/news/business-45365893

One of my reasons for holding Whitbread is the strength of Costa. Not just the rising tide of the coffee shop (largely at the expense of the pub) which has floated Costa's boat along with Starbucks, Nero, and smaller chains. But the Good Ideas going beyond that. Franchises in big shops. Costa Express, and (finally) a brand of vending machine that sells a drinkable coffee.

Costa Express has not achieved saturation - far from it. Likewise Costa's international expansion may have potential to go far, though that's less clear.

As for price, yes, it's expensive - until you compare it to Starbucks rip-off. The new owners are a downmarket brand, so I guess the likelihood is they'll stay cheaper than starbucks, but squeeze out a lot more profit by offshoring their taxable profits.

I like the brand. I'd've been happy for it to stay part of Whitbread, or to float independently on the LSE. Or if it was going to be sold to another bigco, I could've been happier if the buyer were someone more respectable, like SSP or Compass.

StepOne
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Re: whitbread/Costa

#163325

Postby StepOne » August 31st, 2018, 9:44 am

richfool wrote:6 months ago, I bought myself a coffee machine and make my own and now drink it at home. It saves me 6 (days) x £2.50 = £15 per week x say 50 weeks = £750 pa. (some shops are charging £2.90). Double that for a couple.


Of course you still need to buy ground coffee... which Costa also sell :D

moorfield
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Re: whitbread/Costa

#163331

Postby moorfield » August 31st, 2018, 10:18 am

Like Arb I've bought and held WTB for several years. It now contributes just 2.4% of my overall portfolio income and with today's SP rise yields just over half of my benchmark yield (2.1% vs. CTY 4.1%). Having skimmed the announcement my impression is shareholders can expect a cash payout sometime next year, rather than Coca Cola shares.

A good time now to say farewell perhaps and find a new holding, something to mull over the weekend.

Howard
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Re: whitbread/Costa

#163333

Postby Howard » August 31st, 2018, 10:57 am

richfool wrote:Yes I would agree with Scrumpyjack's points.

I felt "trouble was brewing", the market is getting "frothy", :) - in that Costa have saturated the market, their coffee was over-priced, coffee shops are springing up everywhere. In fact 6 months ago, I bought myself a coffee machine and make my own and now drink it at home. It saves me 6 (days) x £2.50 = £15 per week x say 50 weeks = £750 pa. (some shops are charging £2.90). Double that for a couple.

So maybe a good time for Whitbread to offload Costa.

BBC News item:
https://www.bbc.co.uk/news/business-45365893



Yes, good point, I've been doing this for around 30 years and using your figures plus assuming I've invested the savings and achieved an investment performance of 8% a year I think I'm worth around £80,000 more through my coffee savings. (I haven't taken inflation into account, but have assumed each espresso machine has lasted 10 years.)

And Mrs H rates my cappuccino better than most other offers.

Should I double the £80k to £160k for two cups a day?

Makes one think!

regards

Howard

PS Apologies for off topic post but it re-inforces Richfool's point that the coffee shop market may be peaking.

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Re: whitbread/Costa

#163340

Postby scrumpyjack » August 31st, 2018, 12:30 pm

Interesting that one broker has suggested that this could well lead to the rest of Whitbread being bought up by the likes of IHG, Accor or Marriott.

The ownership and operation of the hotels would then be split between a property company and one of these Hotel operators.

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Re: whitbread/Costa

#163365

Postby Gengulphus » August 31st, 2018, 3:07 pm

Arborbridge wrote:My gut feeling is that the benefit to shareholders will be intangible, or sloped out over a long time so as to be un-noticeable.
That one off boost will vanish in a puff of smoke.
· A significant majority of net cash proceeds intended to be returned to shareholders
Nothing specific, and possibly (even probably) not a special dividend

Having said that they'll be returning the majority of net cash proceeds to shareholders, it would be most unwise for the directors not to announce specific methods of returning them fairly soon (say within the next year at the very most) - they will have major shareholders all over them if they announce a return of cash and then don't make good on it.

I suspect the fact that they haven't said how they'll return the cash yet is basically a matter of confidentiality: while they were negotiating with Coca Cola, those negotiations would probably have been confidential. If so, that would have meant they couldn't tell any shareholders what was going on without making them 'insiders', and fund managers and other major shareholders would generally not want to agree to that, since that would tie their hands as regards any trading in the shares (which doesn't mean that they won't be intensely interested in less direct information and what they can work out from it about what deals might be going on, by the way - the problem is basically only about being directly told by the company). The net result of that is that the directors have only just started being able to say to shareholders "we've got these funds coming in and are going to return them to shareholders - how would you prefer we did that return?" - and they would also be unwise to decide how they're doing it without giving shareholders (especially major ones) a chance to express their views...

My own preference is generally the little-used tender offer: make the same offer to all shareholders to buy some or all of their shares back. That's because it treats all shareholders on an equal footing while giving them a choice as to whether they'd like to keep their money invested in the company or to have some or all of it returned for them to invest elsewhere. Market buybacks (probably the most common actual choice by companies, I think) fail to treat all shareholders on an equal footing in practice, being biased against small shareholders because e.g. selling 10% of a £1k holding to get one's share of the cash has very significant selling costs compared with the cash returned, while selling 10% of a £1m holding doesn't. And they may also be biased against shareholders who have less time and attention to devote to the job of doing the selling (though opinions may vary about whether devoting much time and attention to the selling actually gains anything significant, which is why I say "may"!).

Special dividends accompanied by share consolidations (probably the second most common method in practice) don't have those problems, and do indeed treat all shareholders on an equal footing in practice, but they result in all shareholders effectively selling a portion of their shareholdings - i.e. no choice for the shareholder about whether or not they keep their money invested in the company. They can also be decidedly annoying taxwise for those shareholders for whom Income Tax is a bigger concern than CGT, who are generally a very substantial number of shareholders (though by no means all of them).

And special dividends unaccompanied by share consolidations aren't really all that different from those accompanied by share consolidations: you simply end up with a lower share price and an unchanged number of shares, rather than a roughly-unchanged share price and a lower number of shares. I prefer them to special dividends accompanied by share consolidations because they only require the payment to be recorded as part of my income for the year, rather than adjustments to my CGT records as well. But I can certainly see the 'cosmetic' arguments for doing the consolidation, i.e. that leaving the share price roughly unchanged and the base level for the next year's dividend unchanged to avoid giving the impression of plummeting prices and dividend cuts is a good idea. (With regard to the dividend effects, if the special dividend is to return the proceeds of selling off part of the company, then the company has lost a corresponding part of its earnings. So it has less in the way of earnings with which to pay its dividends and so its total dividend payout will need reducing. The consolidation route does that by reducing the number of shares on which they have to be paid, while the no-consolidation route doesn't do that and so will probably require the dividend per share to be reduced, unless it's got enough leeway on paying dividends that it can still afford its total dividend payout from the reduced earnings. That's most likely when the fraction of the company sold off is quite small, which is one of the reasons why an accompanying share consolidation becomes more likely the bigger the special is.)

Tender offers do have disadvantages as well, the main ones of which that I'm aware of are that they're comparatively expensive, as they require individual decisions to be collected from all shareholders, and that they need to be pitched at the right level to ensure that they do return all the cash the company wants to, without significantly overpaying for the shares. (Some include an auction-like mechanism, asking shareholders at what price they'll accept within a limited range of possibilities, and paying the lowest price that gets enough acceptances to return the cash the company wants to. That alleviates the second problem, but makes the first a bit worse because of the more complex shareholder responses.) But on the whole, I feel they're the best option from my shareholder perspective.

One last point is that the present situation, where the directors haven't yet committed themselves to a particular mechanism for returning the cash, is probably the best time to make your views on the matter known to the company. Don't expect them to be given great weight, of course, but if you feel strongly about the matter, you might as well try... If you do, make it very clear that you know the matter is still to be decided and that you're providing investor feedback about which decision you would prefer, not asking to be told what the decision is - investor relations people are just as prone as any other public relations people to trot out the stock answer to a common type of complaint if they can see any hint of it in what you say...

Gengulphus

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Re: whitbread/Costa

#163366

Postby Gengulphus » August 31st, 2018, 3:09 pm

monabri wrote:It's a play on words from an album (released 1973) by Genesis ..."Selling England by the pound".

Coffee, ground....I'll get my coat :)

Thanks!

Gengulphus

scrumpyjack
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Re: whitbread/Costa

#163383

Postby scrumpyjack » August 31st, 2018, 4:02 pm

A few thoughts on how the cash should be returned...

Given that the cash return will probably be about £16 to £18 per share and represents the proceeds of the sale of a substantial part of the business it should certainly be structured as a return of capital treated for tax purposes as a partial disposal of each shareholders holding.

Such treatment is consistent with the underlying nature of the transaction. The money comes from the sale of a major capital asset.

A special dividend would be far more highly taxed for many private shareholders, leading some to have to sell their entire WTB holding before the return and why should the cash be taxed as income when its source is certainly not income?

A share buyback is not really fair to all shareholders and anyway the amount is far too large in relation to the companies market cap to be practical.

A tender offer as suggested would be fine if it could be done but would have to have mandatory caps and collars if the response to the tender could not be aligned with the amount of cash to be returned.

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Re: whitbread/Costa

#163388

Postby tjh290633 » August 31st, 2018, 4:13 pm

I am with Gengulphus on the tender offer. By far the best way.

TJH


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