Dominic Walsh - Getting in on the act

Activist shareholders have been pretty, er, active in the wider hospitality and leisure sector in recent times. Whitbread was targeted by Sachem Head Capital Management and Elliott Management Corporation; Merlin Entertainments was given a poke in the ribs by ValueAct Capital; and Just Eat caught the eye of Cat Rock Capital.

In all three instances, the changes recommended by the activists have come to pass. Whitbread duly split off its Costa Coffee business from its Premier Inn hotels, collecting an eye-watering £3.9bn from The Coca-Cola Company in the process; Merlin agreed to be taken private by a consortium of the Lego family, Blackstone Group and the Canada Pension Plan Investment Board; and Just Eat has just agreed a £9bn merger with Dutch rival Takeaway.com.

So in all three situations, it’s job done: 3-0 to the activists. Or is it? It’s all very well for the activists involved to claim victory, but in truth it’s not quite that clear cut. For example, Alison Brittain, the Whitbread CEO, insisted in the aftermath of the Coke deal, that Sachem Head and Elliott had played no part in the whole decision-making process leading to the Costa disposal.

It is certainly true that, even before she joined Whitbread almost four years ago, the issue of a demerger or some other kind of split was already near the top of her in-tray. In other words, it was not a question of whether Costa would be the subject of a conscious uncoupling (to quote Gwyneth Paltrow) from Premier Inn, but when. We can probably give the activist duo some credit for chivvying things along a bit, but no more than that.

What of Merlin? Well, in this case, if one is to believe Merlin (and there is no reason not to), ValueAct’s demands that the company should consider taking itself private came after the bidding consortium had already put its first offer on the table. It may have looked from the outside as though it was the activist that made the first move, but the reality was that negotiations were already going on behind the scenes and ValueAct’s timing was completely coincidental.

The Just Eat case appears to be different, however. When Cat Rock first criticised the company’s performance, it was soon rewarded with the abrupt exit of Peter Plumb, its chief executive of only 16 months. It then called for the delivery company to abandon the search for a replacement and instead kill two birds with one stone by merging with a company with an existing CEO with the requisite skills and experience to run the enlarged company. Takeaway.com and Berlin-based Delivery Hero were mooted as potential marriage partners and sure enough, it is now preparing to tie the knot with the Dutch group, in which Cat Rock also has a 4.9% stake.

So hats off to Cat Rock for coming up with a strategy to restore Just Eat’s flagging fortunes and persuading the company’s board to follow it. Mind you, given that Whitbread’s and Merlin’s activists are also in the money, credit to them for timing their moves so well. It just shows that, in the world of activist investing, there is more than one way to skin a cat. Especially when Cat Rock is involved!

On the subject of Just Eat, the proposed Takeaway.com deal is the latest in a sector where the pace of consolidation is accelerating.

Amazon – assuming the Competition and Markets Authority gives it the green light – is investing $500m in a minority stake in Deliveroo in a move that is expected in the fullness of time to end up in a full takeover. Just Eat completed the £240m purchase of HungryHouse from Delivery Hero in January last year. Then in December Takeaway agreed a €930m acquisition of Delivery Hero’s German business in a cash-and-shares transaction that gave the vendor an 18% stake in the Dutch purchaser.

Delivery Hero and GrubHub have been tipped as possible counterbidders for Just Eat, although analysts at Jefferies reckon any putative rival interest is more likely to come from the likes of SoftBank of Japan or big private equity firms.

Analysts at Barclays reckon that Uber, the taxi hailing app that owns UberEats, could be a contender to bid for Just Eat, so it will be interesting to see whether any of these mooted parties decides to enter the fray over the next four weeks while Takeaway.com ponders whether to put up or shut up.

Another bid situation which some analysts reckon could get interesting is Stonegate Pub Company’s recommended £2.97bn offer for Ei Group (or Enterprise Inns as it is still widely referred to). Although TDR-backed Stonegate has put a finely judged offer on the table, valuing the business at 11.4 times last year’s EBITDA, Nigel Parson at Canaccord Genuity is among those who remain “slightly underwhelmed” by the offer, suggesting Molson Coors and Patron Capital, which teamed up with Heineken to split up Punch Taverns, as possible counterbidders.

I can see where Parson is coming from. Ei Group is a business which, thanks to the efforts of Simon Townsend, has emerged from the carnage of the past decade or so with a quality pub estate that has the potential to deliver excellent growth from the acceleration of the strategy of converting high quality tenancies to managed houses.

Townsend has long insisted that Ei has a unique estate, yet the feeling persists that the Stonegate offer, while perfectly fair, is not the knock-out bid such an estate deserves.

The recent spate of big-ticket M&A activity has inevitably got people scouring the market for the next big opportunity. In that context, Marston’s, Greene King and Mitchells & Butlers are all bound to feature on bankers’ lists of candidates, and in the current climate you wouldn’t rule any of them out.

It’s not hard to see why such big companies might attract bid interest. Analysis by Bain, the consulting group, suggests that the amount of cash sloshing about in private equity funds waiting for a home has hit a record $2 trillion and high quality, asset-backed pub estates would surely rate highly on those funds’ hit lists.

Dominic Walsh is a business reporter at The Times