SINGAPORE - As a shareholder revolt hangs over City Developments' (CDL) proposed £1.8 billion takeover offer for sister company Millennium & Copthorne Hotels (M&C), CDL has moved to soothe claims that it is buying minorities out on the cheap.
In a letter to M&C's independent directors on Tuesday (Oct 17), fund managers from International Value Advisers, which holds 7 per cent of M&C, and MSD Partners on roughly 1.4 per cent, criticised the 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 percent discount to M&C's 820 pence per share net asset value.
The letter 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 attacked the proposed offer.
In a joint statement issued late Thursday night, CDL and the independent directors of M&C emphasised that M&C 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 it 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. These valuation numbers were not disclosed.
Mr David Smith, Aberdeen's head of corporate governance for Asia Pacific, believes 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 disjoint between M&C's valuable asset base and its less impressive operational performance. In August, 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 value from there, said one analyst who declined to be named.
However, unlike its larger hotel group peers such as InterContinental Hotels and Hyatt that run an asset-light model, M&C is an "unusual case".
"Shareholders were holding it for asset value. They were not holding it for operational value," this analyst explained.
In turn, M&C's independent directors have pointed out that they had rejected two earlier proposals by CDL before agreeing to the price now proposed, which was announced last week.
To be sure, there is no certainty of CDL making a formal offer for M&C.
Although CDL owns 65.2 per cent of M&C, it has said that 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' disquiet.
CDL shares closed five cents or 0.38 per cent down at S$12.95 on Thursday.