SGX Stocks and Warrants

Author: kimeng   |   Latest post: Mon, 19 Feb 2018, 09:34 AM


City Developments Limited: Possible Offer for Listed Hotel Subsidiary

Author:   |    Publish date:

  • Possible offer for M&C
  • Cash offer of 552.5 pence per share
  • Likely accretive if successful

Possible Cash Offer of 552.5 Pence Per M&C Share

CDL announced that they have reached an agreement with the independent directors of Millennium & Copthorne Hotels PLC (M&C) on the price at which these directors will recommend a possible cash offer by CDL for all the outstanding M&C ordinary shares that CDL does not already own. As at 9 Oct 2017, CDL indirectly owns 65.2% of the shares of M&C.

The proposed cash consideration comprises a cash amount of 545 pence per M&C share and a special dividend of 7.5 pence per share which will be payable upon the offer becoming unconditional. This represents a 22.0% premium to the VWAP of 452.7 pence per share over the period of one month before 6 Oct 2017, and also a 21.4% premium to the closing share price of 455.0 pence on 6 Oct 2017.

No Certainty That a Formal Offer Will be Made

We highlight that there is no certainty a formal offer will be made, and discussions on the other terms and conditions of the proposed offer are still ongoing. If successful, we see this as a positive development for CDL which will almost certainly be accretive. Given green shoots in the global economy, the outlook for hospitality assets is broadly turning positive.

In addition, CDL already indirectly owns a substantial stake in M&C, and intimately understands its expansive hotel portfolio and business model as an owner and operator. Against this backdrop, it makes sense for CDL to fully consolidate its hotel subsidiary – if the right price can be agreed upon.

In our view, while the potential cash offer price is fairly attractive for CDL, it also offers M&C shareholders a valuable opportunity for liquidity at a sizeable 21.4% premium to the last closing price on 6 Oct.

Pending a formal offer, our fair value estimate of S$12.90 for CDL remains unchanged. Maintain BUY.

Source: OCBC Research - 11 Oct 2017

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