The group, which also operates Premier Inn, says the split is in the “best long-term interests” of stakeholders and will allow both brands to “thrive as independent companies”.
The demerger of Costa, which has more than 2,400 UK coffee shops and around 1,400 outlets overseas, will be completed within two years.
It follows pressure on Whitbread from activist investors Elliott Advisors and Sachem Head, which together control almost 10% of shares, to split the business in to separate entities to support growth.
“[The Board] believes that it is in the best long-term interests of Whitbread’s many stakeholders to separate Premier Inn and Costa, via a demerger of Costa,” says Alison Brittain, chief executive of Whitbread.
“We have carefully considered the optimal timing and concluded that it will be pursued as fast as practical and appropriate to optimise value for Whitbread’s shareholders.”
At the point of separation Costa will become a listed entity in its own right, and is expected to focus on growth in China and through its Costa Express vending machine format.
The announcement was made alongside the group’s full-year trading results, which showed a 0.4% drop in like-for-like sales at Costa’s UK equity stores, although growth in Costa Express pushed overall like-for-like sales at Costa to 1.2% growth year-on-year.
Total sales at Whitbread grew 6.1% to £3.3bn, with pre-tax profits rising 6.4% to £549m.
Whitbread is the UK’s largest hospitality company and also owns the Beefeater, Bar + Block and Brewers Fayre restaurant and pub brands.
The group acquired Costa from its founders Sergio and Bruno Costa in 1995.