Premier Inn’s German expansion not a mistake, Whitbread tells activist investor
Premier Inn owner Whitbread has been forced to defend its expansion into Germany after the activist investor seeking to gain a board seat cast significant doubt over the move.
The FTSE 100 hospitality giant, which also owned Beefeater and Brewers Fayre, first expanded into Germany in 2014 and now operates 75 Premier Inn hotels in the country.
But Corvex Asset Management, the activist investor which is seeking a seat on Whitbread’s board, believes the hotel group’s German venture was a mistake and would seek a review of its operations in the country, City AM has learned.
Whitbread has invested about £1.1bn in Germany over the past eight years into around 11,500 rooms, which generated £2m in pre-tax profit last year.
Premier Inn’s inability to get off the ground in this market has meant its owner has suffered from a decade of “capital misallocation” and share price “underperformance,” Corvex is expected to argue.
The New York-based investor believes that Premier Inn has struggled in Germany because the hotel brand lacks the historical significance and word-of-mouth relevance it has in the UK.
But a spokesperson for Whitbread said: “The Premier Inn brand is increasingly popular in Germany and we are consistently outperforming the market there.
“With our future growth also requiring minimal capital expenditure because it will be largely through leaseholds, we see a clear path to accelerating our financial performance in what is a hugely attractive and highly fragmented hotel market 40 per cent bigger than the UK.”
In April, Whitbread set out plans to deliver £65m in pre-tax profit in Germany by 2031. On average, its rooms in the country lose £4,000 in their first year of operation before delivering a £7,000 profit in their fifth year, according to company accounts.
Corvex eyes doubled share price
Whitbread chief executive Dominic Paul told shareholders in April that last year was a “breakthrough year for Germany, delivering our first annual profit – a major milestone for the group.
“The quality and value of our customer offer is driving high guest scores and our brand awareness continues to increase, underpinning our strong outperformance versus the rest of the market.”
Earlier this week, Corvex demanded that Whitbread hands a board seat to James Gemmel, a partner at the investment firm, voicing “growing concern” over the hotel group’s strategy.
Whitbread said in April it would slash thousands of jobs and sell off all of its restaurants in a bid to keep up with rising taxes and the extra costs caused by the Iran war.
Corvex, which owns more than six per cent of Whitbread, had initially called for a sale of the firm but on Tuesday said it is now seeking a “rigorous, fact-based review” of the company.
The investor told Whitbread’s board that it has no “predetermined agenda” for how the hotel group should reverse its fortunes, but is understood to believe that the firm could double its share price in the next three to five years.
Shares in Whitbread jumped by 0.6 per cent on Friday to 2,342p.