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The owner of Premier Inn is facing calls from an American activist investor to rethink its business strategy, just weeks after the company warned the budget would cost it up to £50m next year.
Corvex, a New York-based hedge fund, told Whitbread it should begin a strategic review as it braces for big tax rises next year after changes announced by the chancellor, Rachel Reeves.
“Following the recently announced UK budget and changes to rateable values and business rates, we believe the company should undertake a strategic review to assess its capital allocation priorities and overall strategic direction,” the fund said in a statement.
Whitbread, which also owns the restaurant chains Beefeater and Brewers Fayre, has been squeezed by higher costs this year due to higher wage bills and rising food prices. The FTSE 100 company is expected to come under further pressure as changes to the way business rates are calculated come into effect next year.
Corvex argued that Whitbread’s share price undervalued some of its assets, including its UK portfolio of leasehold properties, its German hotels, and properties that are under construction.
Corvex also called on Whitbread, which has more than 800 Premier Inn hotels in the UK, to review its current five-year capital plan, which involves about £3.5bn of investment.
The hedge fund now owns a 6.05% stake in Whitbread, making it the FTSE 100 company’s second biggest single shareholder, behind the US asset manager BlackRock. Corvex added it would seek a seat on Whitbread’s board.
A spokesperson for Whitbread said: “Whitbread has a clear strategy and business model, and our five-year plan is designed to deliver strong returns for shareholders through growth in both the UK and Germany.
“We run our business for the long-term but remain flexible, and as stated in our announcement on 28 November, we are exploring various options to further drive profits, margins and returns in light of the impact of measures in the UK budget.”
Last month, the company said changes in the autumn budget would cost it £40m- £50m in its next financial year.
Multiple analysts downgraded their view on the stock in the days after the budget, with the broker Bernstein arguing the impact of business rate changes would be a “hammer blow” to the company.
Bernstein examined a sample of 67 Premier Inn hotels and found the median increase in the rateable value of its properties to be about 174%, with most of its estate above the £500,000 level, meaning no relief. Bernstein cited the Manchester Piccadilly Premier Inn as an example, where it calculated there would be a 385% increase in its rateable value.
The broker estimated the overall impact on Whitbread’s pre-tax profits would be up to £30m in the first year, £90m in the second year and £140m in the third. Shares in Whitbread rose by as much as 6% in early trading on Thursday, but are still down by more than 10% over the year to date.
