City Developments - RHB Invest 2019-06-10: Revised Takeover Offer For Millennium & Copthorne Hotels


City Developments - Revised Takeover Offer For Millennium & Copthorne Hotels

  • Remain NEUTRAL with an unchanged Target Price of SGD9.20, 8% upside and 2% yield.
  • CITY DEVELOPMENTS LIMITED (SGX:C09)’s revised takeover offer to acquire the remaining 35% stake and take full ownership of its London-listed subsidiary Millennium & Copthorne hotels (M&C) is likely to gain approval from minority shareholders.
  • The move is a long-term positive and should help City Developments to better reposition its ageing hotel assets but will also result in a significant increase in its near-term capex. We make no changes to our estimates, pending further updates.

Revised superior offer for M&C likely to gain minority acceptance.

  • Based on a revised takeover for M&C, the minority unit holders (City Developments currently owns a 64.2% majority stake) will receive 685 pence per share in cash, a 37% premium to the closing price from 6 June. The final offer values the entire M&C at GBP2.2bn (SGD3.9bn), an implied FY18 P/B of 0.82x or 12.4x EV/EBITDA.
  • This is a second takeover offer for M&C since in October 2017, City Developments made an offer of 552.5 pence/share which it later revised to 620 pence/share. The offer lapsed on Jan 2018 as City Developments failed by a small margin to get the minimum acceptance of > 50% of M&C's shares that it did not already own.
  • We believe the latest offer is likely to gain a minority acceptance as it’s a 10.4% premium to the previous offer and comes at a time when market conditions have worsened considerably amid heightened trade war concerns and Brexit uncertainty. City Developments has also received irrevocable undertakings from the minority shareholders representing 43.6% of shares it currently does not own, thus it needs only 6.5% more in acceptance, to clear the hurdle.
  • Additionally, M&C’s independent directors, who have been advised by Credit Suisse, intend to recommend unanimously that M&C shareholders accept the final offer

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-06-10
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 9.200 SAME 9.200