City Developments - DBS Research 2019-06-10: Courting Millennium & Copthorne (M&C) Again With A Sweeter Offer


City Developments - Courting Millennium & Copthorne (M&C) Again With A Sweeter Offer

  • City Developments returns with a higher offer of 685 pence to privatise Millennium & Copthorne PLC (M&C).
  • Latest offer prices M&C at a 5-year high, opportunity for M&C shareholders to exit an illiquid stock.
  • City Developments to gain operational flexibility to drive performance and chart its future against current operational challenges.
  • City Developments’ NTA to increase to S$11.17 from $11.07 currently.

What’s New - CDL offers 685 pence for every share of M&C held by minorities

  • CITY DEVELOPMENTS LIMITED (CDL, SGX:C09) returns with a higher 685 pence per share bid for Millennium & Copthorne PLC (M&C) listed on the London Stock Exchange.
  • The offer price of 685 pence is c.10% higher than City Developments’ earlier offer of 620 pence (inclusive of a special dividend of 20 pence a share) back in 2017.
  • The offer represents a 37.0% premium to the last closing price of M&C and is final and will not be raised.
  • The offer price will also be adjusted for any distribution or capital return made by M&C on or after 7th June 2019.

Privatisation bid is closer this time as selected minority shareholders have given irrevocable undertakings to accept the offer.

  • The offer price of 685 pence values M&C at GBP 2.23bn (S$3.86bn) and given that City Developments has a majority 65.2% stake in the company, the maximum outlay for the group, if the offer is successful, is estimated to be GBP 776.29m (S$1.34bn).
  • The offer will be funded by a combination of internal cash and credit facilities.
  • City Developments’ previous offer back in late 2017 failed as the group was not able to satisfy the minimum acceptance condition of > 50% of the M&C shares it did not own (City Developments achieved 47.14% acceptance).
  • This time, City Developments has secured an irrevocable undertaking from key minority shareholders for c. 43.65% of the M&C shares it does not own, which puts the group closer towards achieving the conditions to take M&C private.

Benefits for M&C: opportunity to exit at a 5-year high?

  • The latest offer by City Developments is at a 37% premium to the closing price of 500 pence, which is a 5-year high. We note that M&C’s share price closed 35% higher at 675 pence after the offer was made.
  • In terms of operating performance, 2018 has been a challenging year for M&C with the group reporting a c.29% drop in net profit to GBP 106m on the back of a 1.1% dip in revenues to GBP 997m. This was mainly on the back of tougher global operational conditions coupled with impairments (GBP 36m in 2018; GBP27m in 2017).
  • 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.

Benefits for City Developments: Regain control; re-position portfolio to reap higher rewards.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-06-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 9.500 SAME 9.500