CDL may make buyout offer for Millennium & Copthorne

Oct 10, 2017

Developer's shares rise on news of possible cash offer for its London-listed sister company

Marissa Lee


City Developments (CDL) shares rose yesterday on news that the company may be buying out its London-listed sister company Millennium & Copthorne Hotels (M&C).

The stock jumped 15 cents or 1.29 per cent to $11.75 after touching a high of $11.83 in intra-day trade. Four million shares changed hands.

Investors moved in after CDL announced a possible cash offer of 552.5 pence a share for stock in M&C, an offer that values the hotel group at about 1.794 billion (S$3.2 billion).

CDL indirectly owns about 65.2 per cent of M&C. Both are members of the Hong Leong group of companies helmed by billionaire hotelier Kwek Leng Beng.

CDL said the proposed offer price represents a premium of about 23.7 per cent to M&C's closing price of 446.7 pence on Aug 18, the last business day before an initial proposal was received from CDL.

It is not a regulatory requirement for CDL to announce a possible offer before making a formal one. Rather, yesterday's announcement reflects where things stand. Discussions pertaining to the terms of the offer are ongoing.

British takeover rules require CDL to make a firm offer for M&C by Nov 6. CDL said there can be no certainty of a formal offer.

Mr Justin Tang, head of Asian research at United First Partners, said: "CDL is paying a decent 21 per cent premium over last Friday's closing price for an entity that they already control."

He noted CDL's offer price is also higher than the 479.33 pence average target price of three analysts covering M&C, according to Bloomberg.

DBS analyst Rachel Tan said the deal would be positive for CDL, since M&C trades at an attractive level compared with global hospitality plays.

"From our calculations, the price implies an enterprise value of 12 times M&C's Ebitda (earnings before interest, taxes, depreciation and amortisation). Its peers are trading at an average enterprise value over Ebitda of 14 times," she said.

"Down the road, M&C's properties also provide a potential pipeline to inject into CDL Hospitality Trusts."

M&C operates 131 hotels worldwide with a room count of 37,022 and occupancy rate of 71.8 per cent last year.

OCBC Research analyst Eli Lee said: "If successful, (the deal) will almost certainly be accretive for CDL. Given green shoots in the global economy, the outlook for hospitality assets is broadly turning positive."

CDL said it intends to maintain M&C's business model, in particular to run it as an owner and operator of its hotel portfolio. CDL also confirmed that it has no intention to sell or repurpose any of M&C's hotels in London or in New York.

M&C's independent directors said they considered the terms of the offer to be fair and reasonable.

An independent committee was formed to evaluate the proposed offer, which excludes CDL's appointees to the M&C board - Mr Kwek Leng Beng, who is M&C's chairman, his cousin Kwek Leng Peck and his nephew Kwek Eik Sheng.

M&C shares were up 21.32 per cent at 552 pence in London as at 6pm Singapore time.

The proposed offer would be made up of a cash amount of 545 pence per M&C share, together with a special dividend of 7.5 pence per share payable to all M&C shareholders upon the offer becoming unconditional.