The owner of the Premier Inn hotel chain, Whitbread, is facing pressure from a major US activist investor to reconsider its business strategy. This call to action comes shortly after the company warned that recent government budget measures would significantly impact its finances.
Corvex Calls for Strategic Overhaul
New York-based hedge fund Corvex Management, which now holds a 6.05% stake in Whitbread, has publicly urged the FTSE 100 giant to launch a full strategic review. The investor argues this is necessary as Whitbread prepares for substantial tax increases next year, stemming from changes announced by Chancellor Rachel Reeves in the Autumn Budget.
In a formal statement, Corvex said: “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 also stated its intention to seek a seat on Whitbread's board of directors.
The Budget's 'Hammer Blow' to Profits
Whitbread, which also operates the Beefeater and Brewers Fayre restaurant brands, had already flagged the budget as a major concern. Last month, the company revealed the fiscal changes would cost it between £40 million and £50 million in its upcoming financial year.
Analysts have since detailed the severe expected impact. Broker Bernstein described the business rates overhaul as a “hammer blow” to Whitbread. Their research, examining a sample of 67 Premier Inn properties, found the median increase in rateable value would be approximately 174%. Notably, most of the estate is valued above the £500,000 threshold, disqualifying it from relief schemes.
One stark example cited was the Premier Inn at Manchester Piccadilly, where Bernstein calculated a staggering 385% increase in its rateable value. The broker estimates the total hit to Whitbread's pre-tax profits could reach £30m in year one, £90m in year two, and £140m in year three.
Investor Critique and Company Response
Corvex contends that Whitbread's current share price fails to reflect the true value of key assets. These include its extensive UK portfolio of leasehold properties, its growing German hotel business, and various properties currently under construction. The activist investor has also called for a review of Whitbread's five-year capital investment plan, which involves around £3.5 billion of expenditure.
In response, a Whitbread spokesperson defended the company's trajectory: “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.”
The news prompted a 6% rise in Whitbread's share price during early trading on Thursday, though the stock remains down by more than 10% since the start of the year. The situation places Whitbread at the centre of a debate on business rates and corporate strategy, as it navigates higher operational costs from wages and food inflation alongside this new fiscal pressure.
