Whitbread, the Whitbread Investment Company and Protection from Hostile Bids

Bower, Julie and Cox, Howard (2013) Whitbread, the Whitbread Investment Company and Protection from Hostile Bids. In: ABH Annual Conference, 27-29 June 2013, University of Central Lancashire. (Unpublished)

Abstract

The Whitbread Investment Company (WIC), commonly referred to as the Whitbread Umbrella, was an investment trust comprising minority shareholdings in a large array of regional and family brewers that was established in 1956. It was a listed company quoted on the UK stock exchange but was majority owned by the Whitbread group and members of the Whitbread family; the chairman of Whitbread was also a director of WIC. The structure survived in this form as a quasi-independent entity until 1994, when, under increasing pressure from institutional shareholders, the Whitbread group was forced to end its own two-tier voting structure as well as acquire, then subsequently divest, the minority shareholdings of WIC.
As an essentially bid-proof trust WIC served to maintain the independence of not just the many regional brewers it had invested in - at least for a time - but also the wider Whitbread business. As explained in the 1989 anti-trust inquiry into the UK brewing industry, the backdrop to the establishing of WIC was the post-World War II fledgling market for corporate control emanating from the changes in legislation brought about by the Companies Acts of 1947 and 1948. Fearing that their independence was at risk from hostile approaches from early financial entrepreneurs, a group of family-managed and property-rich regional brewer-retailers sought the help of the larger patriarchal Whitbread, under the auspices of the influential Colonel W.H. Whitbread. Whitbread obliged with equity investment in return for formalised trading agreements and in some cases an invitation for a Whitbread director to join the board of the regional brewer. As the 1950s progressed, Whitbread expanded the number of such relationships and ring-fenced them in the WIC structure. In addition, the relationship between WIC, Whitbread and the Whitbread family was strengthened by WIC accepting Whitbread ‘A’ (ordinary) shares in lieu of payment for Whitbread’s acquisition of control of some of WIC’s investments and the purchase of high voting ‘B’ shares (twenty times the vote of an ‘A’ share) from Whitbread family members when they became available.
By the time of the ‘merger wave’ of 1968-72 that saw the entry of influential property finance entrepreneur Maxwell Joseph into the Beerage through the hostile bid for southern neighbour Watney Mann, Whitbread, via the agency of WIC, had brought under full ownership and control the majority of the original 20 or so regional brewery investments. It had become one of the largest national brewer-retailers through sequential acquisition without recourse to the capital markets. While the umbrella structure did not of itself prevent third party approaches to one of the regional firms (WIC considered offers on longer term merits alone, and in the case of the 1992 hostile bid for Morland from rival Greene King, it sold its 28.5 per cent stake to the predator) the complexity of the arrangement and the involvement of the larger Whitbread were seen as an effective defence to a hostile bid.
WIC was a firm-sponsored solution to a perceived issue arising in the post-world war II period, specifically changes in company law that created a market for corporate control. That this might not have acted in the best interests of the wider brewing industry was summed up in a Campaign for Real Ale poster: “a fine idea in principle, but as the murdered diplomat Gregory Markov discovered, an Umbrella can be a pretty nasty weapon in the wrong hands” (CAMRA poster, 1988).

References:
Bower, J. and Cox, H. (2012) ‘Regulatory capture and special interest pleading: how Scottish & Newcastle became the UK’s largest brewer’, Business History Review, 86 (Spring): 43-68.
Franks, J. and Mayer, C. (1996) ‘Hostile takeovers in the UK and the correction of managerial failure’, Journal of Financial Economics, 40 (1): 163-181.
Gourvish, T.R. and Wilson, R.G. (1994) ‘The British Brewing Industry 1830-1980’, Cambridge, UK
Hannah, L. (1974) ‘Takeover bids in Britain before 1950: an exercise in business ‘pre-history’, Business History, 16 (1): 65-77.

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