CDL raises its offer price in M&C Hotels buyout bid

The Millennium Biltmore Hotel Los Angeles. M&C owns, runs, invests in or franchises 137 hotels in 27 countries worldwide.
The Millennium Biltmore Hotel Los Angeles. M&C owns, runs, invests in or franchises 137 hotels in 27 countries worldwide.PHOTO: CITY DEVELOPMENTS

City Developments (CDL) has raised its offer price to acquire the remaining stake in London-listed Millennium & Copthorne Hotels (M&C) after feedback from some minority shareholders about the initial price.

CDL, a majority shareholder which currently holds 65.2 per cent of M&C, has raised the offer price to 620 pence per share, up from 552.5 pence earlier. These include a special dividend of 20 pence and 7.5 pence respectively.

This offer, which CDL said is final and will not be raised further, values M&C at about £2.01 billion (S$3.64 billion), compared with the previous valuation of £1.8 billion. The earlier offer price had been criticised by some of M&C's shareholders, including Fidelity International, which said that it did not reflect the value of M&C's extensive property portfolio.

M&C owns, runs, invests in or franchises 137 hotels in 27 countries around the world.

The 620 pence offer for each share represents a premium of 38.8 per cent to M&C's closing price of 446.7 pence per share on Aug 18, which was the last business day before M&C received an initial proposal from CDL.

M&C's independent directors, who are being advised by Credit Suisse, consider the terms of the final offer to be fair and reasonable. They therefore intend to unanimously recommend that M&C shareholders accept the final offer.

"The M&C independent directors have secured further commitment from CDL that it intends to remain a hotel owner and operator and has no intention to sell or repurpose any hotels in London or New York for at least three years," the committee of M&C independent directors said in the announcement.

Some of the minority shareholders had expressed the view that M&C should be valued on a net asset value basis while CDL has emphasised that it should be valued on an Ebitda basis (earnings before interest, tax, depreciation and amortisation) as it is how a hotel business is typically valued.

Market observers said that it would be onerous to convert or repurpose M&C's hotel assets to another use as this would incur taxes or transaction costs.

The underlying value of M&C's hotels is not the best reference point, CDL had also earlier 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.

The final offer for M&C enables shareholders to exit at a substantial premium, said CDL chief executive Grant Kelley.

"We are absolutely committed to maintaining M&C's strategy as both a hotel owner and operator, recognising the value of M&C's long-term, recurring income stream which has always been a critical component of CDL's overall operating performance," he said in a statement. "In taking M&C private, we believe the company will be best placed to compete in this increasingly competitive global landscape, benefiting from greater investment and the ability to further leverage CDL's significant infrastructure and resources."

CDL had argued earlier when it first made its offer that M&C currently faces challenges from intensifying competition, geopolitical instability and technological disruption.

It believes that M&C will need to advance its capital expenditure refurbishment programmes in a number of hotels to improve and maintain its competitiveness. This would likely further impact M&C's earnings, it said.

A version of this article appeared in the print edition of The Straits Times on December 11, 2017, with the headline 'CDL raises its offer price in M&C Hotels buyout bid'. Print Edition | Subscribe