CityDev chairman urges M&C minority shareholders to accept takeover offer

Kwek Leng Beng said accepting the offer will allow them to exit their holdings at "a material premium".

The chairman of City Developments Limited (CDL) Kwek Leng Beng defended the share price for the takeover of Millennium & Copthorne (M&C), which was contested by a group of shareholders.

According to a letter, M&C’s operating performance has been weak in recent years and as a consequence, the shares in of the company have not performed well.

"The CDL Board concluded that it would be in the best interests of all M&C shareholders for CDL to make an offer which will afford the minority investors in M&C the opportunity to exit their holdings at a material premium to the share price available in the market prior to the start of the offer period," Kwek said.

Singapore Business Review previously reported that CDL raised its bid from 552.5 pence per share to 620 pence per share, bringing the total offer to $3.64b.

A group of shareholders suggested that the final offer should be based on the net asset value (NAV).

"These valuations only exist in theory and if attempts were made to crystallise them, would prove ethereal, and we believe this jeopardises the interests of the many other, often longstanding, shareholders, whom we believe will find the final Offer attractive," Kwek responded.

He added that hotels are typically valued on a multiple of either EBITDA or net profit, especially when a hotel portfolio is being sold.

"Whilst hotels of course have some real estate substance, in the vast majority of cases, it is very rare to secure an alternative use for existing hotels. Their value, therefore, must depend upon the earnings which they generate as hotels," the chairman added.

Should the offer be rejected, CDL said it is ready to address the operating challenges it faces as a public company. Meanwhile, shareholders should also burden of the significant capital expenditure that is required simply to bring the M&C hotels into line with their competitors.

The chairman added that it has been a bleak run for operations for hotel businesses. M&C only served as CDL's "counter cyclical balance" to its more volatile earnings from the developments of its projects.

"The market has, over the 21 years that it has been listed, consistently valued M&C as an operating business in line with its peers as a hotel company. We have consistently stated that we have no plans to change this strategy and, as controlling shareholder, CDL’s intention is that M&C will continue to be run as a hotel owner and operator," Kwek added.

M&C is an international hotel group which owns, leases, manages, franchises, invests in, and operates 137 hotels in 27 countries around the world.