CDL moves to quell ire over M&C offer price

The Millennium Broadway hotel in New York. The row began earlier this week when fund managers criticised M&C independent directors' recommendation to accept CDL's proposed cash offer of 552.5 pence a share.
The Millennium Broadway hotel in New York. The row began earlier this week when fund managers criticised M&C independent directors' recommendation to accept CDL's proposed cash offer of 552.5 pence a share.PHOTO: MILLENNIUM & COPTHORNE HOTELS

Millennium & Copthorne valued by market on earnings basis, hence the discount, it says

Property giant City Developments (CDL) has moved to soothe angry shareholders who accused it of trying to buy minorities out on the cheap after it proposed to take over sister company Millennium & Copthorne Hotels (M&C) for £1.8 billion (S$3.2 billion).

The row began on Tuesday when fund managers from International Value Advisers, which holds 7 per cent of M&C, and MSD Partners, which has roughly 1.4 per cent, criticised the independent directors' recommendation to accept CDL's proposed cash offer of 552.5 pence a share. Their key contention is that CDL's proposal implies a 32.5 per cent discount to M&C's net asset value per share of 820 pence.

The fund managers also called for a valuation of the hotelier's property portfolio to be carried out to help minority investors assess the CDL proposal, Reuters reported.

Aberdeen Standard Investments, with a 4.3 per cent stake, and Fidelity International, with 2.8 per cent, have also blasted the proposed offer.

In an attempt to quell the disquiet, CDL and M&C's independent directors issued a joint statement late on Thursday night noting that the hotel firm has traded and continues to be valued by the market on an earnings basis, hence the discount.

The underlying value of M&C's 131 hotels is also not the best reference point, CDL said, since the property giant has given its undertaking not to sell or repurpose any hotels in New York or London, and must seek approval from Britain's Panel on Takeovers and Mergers if it acts against this in the next 12 months.

M&C's independent directors also noted that they had taken into consideration their property advisers' review of certain assets in New York and London in providing their recommendation. The valuation numbers were not disclosed.

 

  • 32.5%

    Implied discount to M&C's net asset value per share of 820 pence in CDL's £1.8 billion proposal, according to fund managers.

Mr David Smith, Aberdeen's head of corporate governance for the Asia-Pacific, believes that an offer price of 800 pence would be more reasonable.

He told The Straits Times: "Whether they sell the properties or not is immaterial; the assets they've got in gateway cities around the world are tremendous assets. They have an extraordinarily high-quality portfolio in London and New York and a portfolio like that would be difficult to replicate."

The split in views reflects a huge disconnect between M&C's valuable asset base and its less impressive operational performance. In August, M&C chairman Kwek Leng Beng noted that the group faces "continuing pressure on the profitability of our hotel operations, particularly in North Asia and New York".

In the past, analyst forecasts had discounted the value of M&C's properties since there was no indication it would try to realise their value, said an analyst who declined to be named.

The group is unlike its larger hotelier peers such as InterContinental Hotels and Hyatt, which run asset-light models.

M&C's independent directors have also pointed out that they had rejected two earlier proposals by CDL before agreeing to the price now proposed, which was announced last week.

Although CDL owns about 65.2 per cent of M&C, it has said the proposed offer would be conditional on it securing more than 50 per cent of valid acceptances, not counting the shares it already owns. This could be a hard threshold to cross given the fund managers' objections.

A version of this article appeared in the print edition of The Straits Times on October 21, 2017, with the headline 'CDL moves to quell ire over M&C offer price'. Print Edition | Subscribe