View from City Road: Adventures for Whitbread?

Whitbread has decided to scrap its two-tier share structure and fold away the investment company's protective umbrella over regional breweries, a move that should not be seen as an example of an antiquated company being dragged into the 20th century. Whitbread has thoroughly modern ambitions.

The share enfranchisement and the purchase of Whitbread Investment Company was presented as one move, but they have distinct implications for the strategic direction of both Whitbread and the regional brewing industry. Whitbread's shares will be easier to buy and sell, making it possible to bolster the company's firepower with the ammunition of a rights issue. The scope for acquisitions has been widened.

By buying WIC, the company has recognised that the ingenious idea of Colonel Whitbread to ringfence the independence of regional brewers has outlived its usefulness. Scale is one of the keys to success in the brewing and pub retailing industry. Confirmation of this has recently been provided by Greenalls' purchase of Devenish and Scottish & Newcastle's acquisition of Chef & Brewer. The regional brewers and pub operators are on a path leading inexorably to mergers.

Whitbread's announcement yesterday may have originally been timed to coincide with a big purchase, but Whitbread says it was not unduly dismayed by failing to buy Chef & Brewer. Unlike Scottish & Newcastle, it archly says it was not prepared to pay fancy premiums for a slightly tatty pub chain.

However, Whitbread may have lost a larger opportunity than it admits. There are no other chains like Chef & Brewer. Allied-Lyons and Bass are not going to sell their quality assets.

Whitbread is already a leader in off-licences, pubs, brewing, and restaurants like Pizza Hut. There will be opportunities to buy small chains of outlets to dovetail with its businesses, but the scope for a big move in Britain is limited. But if Whitbread begins to look overseas, shareholders could be in for an adventurous ride.