A day after coffee sales put some beans into Whitbread's figures, the group has followed up on its interest in smaller rival Coffeeheaven with an agreed deal worth £36m.
Whitbread's Costa Coffee division is paying 24p a share in cash for Coffeeheaven, which runs a chain of 90 shopes in central and eastern Europe. Coffeeheaven, up 1.25p at 23.5p, has long been a rumoured takeover target for Whitbread, 6p better at £13.86. And now the deal has finally been done, it seems to have gone down well in the City. Nigel Parson at Evolution Securities said:
There are two questions to ask when a deal is mooted: does it fit the strategy? And what's the price? Whitbread's offer for Coffeeheaven ticks both boxes. Coffeeheaven gives Whitbread's Costa Coffee a central and east European bridgehead from which to grow rapidly. The 24p a share offer [is] small change for Whitbread which spends £300m per annum on capital expenditure in a normalised year.
We reiterate our buy recommendation as we expect further upgrades next year. Our target price is under review following yesterday's excellent third quarter interim management statement and today's offer announcement.
Mark Brumby at Astaire Securities said:
Whilst the acquisition does give Costa a foothold in five Eastern European countries, the deal is not easy to value. Coffeeheaven has made net losses in each of the last seven years. The group is being purchased at a price of some 24 times EBITDA but, given the oomph that Costa will bring to its buying and marketing powers going forward, this is hardly likely to be a fair measure. As far as Whitbread is concerned, we would expect the deal, which is de minimis in terms of its size, to be perhaps slightly dilutive in the short term but enhancing on a longer view.
Finally analyst Sam Hart at Charles Stanley repeated his accumulate recommendation on Whitbread, saying:
We consider the proposed acquisition sensible and expect it to complete. The key driver of the shares will continue to be the performance of Premier Inn. We expect trading to continue to gradually improve in 2010, leading to further forecast upgrades. We think the valuation remains reasonable for the trough of the cycle and therefore re-iterate our accumulate recommendation.
