City Developments banks on sweeter $3.86b Millennium & Copthorne Hotels buyout to seal the deal

The latest offer represents a 37% premium over M&C’s $8.66 closing price.

The second cash offer from City Developments (CDL) to buy out struggling Millennium & Copthorne (M&C) Hotels for $3.86b could finally be CDL’s ticket to snatching up the remaining 34.8% stake in M&C it does not already own, a report by OCBC Investment Research (OIR) revealed.

CDL, along with its indirect wholly owned subsidiary Agapier Investment (Bidco) launched a pre-conditional final cash offer of $11.88 (GBP6.85) for each M&C share, which represents a premium of approximately 37% to M&C’s five-year high closing price of $8.66 (GBP5).

Also read: City Developments to buy out Millennium & Copthorne Hotels for $3.86b

The new offer was also 10.5% higher than CDL’s first courtship offer of $10.76 (GBP6.20) per M&C share, which included a special dividend of $0.35 (GBP0.20) per share, made to M&C shareholders on 21 December 2017. The previous offer lapsed on 26 January 2018 because CDL did not satisfy the minimum acceptance condition of more than 50% of M&C’s shares that it did not already own.

“We believe conditions have changed since that fateful last offer. CDL has managed to secure irrevocable undertakings from a number of key minority shareholders such as JNE Partners, MSD Capital, International Value Advisers, Classic Fund Management AG and BWM AG to accept the final offer,” OIR analyst Andy Wong Teck Ching explained, highlighting that these shareholders own approximately 43.6% of the M&C shares not already owned by CDL.

Besides regulatory approvals, CDL’s final offer is also conditional, amongst other things, on CDL securing valid acceptances of more than 50% of the M&C issued share capital not already owned by CDL. “The maximum cash consideration payable by CDL amounts to approximately $1.34b (GBP776.3m) and will be funded via internal cash resources and debt,” Wong added.

M&C’s independent directors have also stated that the terms of the offer are “fair and reasonable”, and intend unanimously to recommend that M&C shareholders accept the offer.

According to a separate report by DBS Equity Research, M&C’s operations have continued to be fraught with challenges, and CDL’s latest offer would provide it with the opportunity to exit at a five-year high.

“In terms of operating performance, 2018 has been a challenging year for M&C with the group reporting an estimated .29% drop in net profit to $183.60m (GBP106m) on the back of a 1.1% dip in revenues to $1.73b (GBP997m). This was mainly on the back of tougher global operational conditions coupled with impairments,” DBS analysts Rachel Tan and Derek Tan highlighted.

“We also note that significant capital expenditure has been planned for selected hotels within M&C’s portfolio and is currently underway which might mean more near-term pressure on earnings in the near term before we see a turnaround,” they said.

They further noted that the potential privatisation of M&C could empower CDL with greater operational flexibility to reposition or redevelop the portfolio of hotels to improve its operating efficiency. Whilst CDL intends to maintain M&C’s hotel network, some of the potential strategies could be to reposition selected hotels within the portfolio to realise value through recycling capital to its real estate investment trust (REIT) CDL Hospitality Trusts. 

Photo from Yahoo! Finance Singapore.