City Developments Limited (CDL) announced over the weekend that its final cash offer for Millennium & Copthorne Hotels plc (M&C) has lapsed, with the former receiving only valid acceptances of ~47.14% which it does not already own.

As such, this offer was not able to be declared unconditional. We expect a negative knee jerk reaction to CDL’s share price this morning. However, it should be noted that it remains business as usual for both parties and CDL will continue to be a controlling shareholder of M&C.

Furthermore, CDL had announced previously that even if the offer had gone through, its intention would be to maintain M&C’s business model as an owner and operator of its hotel portfolio; it also has no intention to sell or repurpose any of M&C’s hotels for a period of three years after the offer period ends. Hence there would unlikely be any operational catalysts in the near term even if CDL had been successful in its bid.

CDL’s management had also highlighted previously that if the final offer was not accepted, it would remain fully committed for M&C to address the operating challenges it faces as a public company. Given these points, we maintain BUY on CDL with an unchanged fair value of S$15.30.

Source: OCBC Research - 29 Jan 2018