The boards of Singapore-based global real estate operating company City Developments Ltd. (CDL) and Agapier Investments Ltd. (Bidco), an indirect wholly owned subsidiary of CDL, and the independent directors of Millennium & Copthorne Hotels have reached an agreement on the terms of a recommended pre-conditional final cash offer that will have Bidco acquire the entire issued and to-be-issued ordinary share capital of M&C not already held by CDL.
Currently, CDL owns approximately 65.2 percent of M&C. This offer is final and will not be increased, according to the company.
M&C shareholders will be entitled to receive a cash amount of 685 pence for each M&C share. This represents a premium of approximately 37 percent to M&C’s closing price based on the closing middle-market price of a M&C share on June 6. (In October 2017, the firm’s independent directors had agreed to recommend an offer of 552.5 pence in cash for each share.)
This also represents an increase of 65 pence from the previously recommended final cash offer of 620 pence per M&C share (which included a special dividend of 20 pence per share) made to M&C shareholders on December 21, 2017.
The previous offer lapsed on January 26, 2018 because CDL did not satisfy the minimum acceptance condition of more than 50 percent of M&C’s shares that it did not already own.
Undertakings and Support
This time, CDL has received irrevocable undertakings (aka binding agreement) to accept the final offer from JNE Partners, MSD Capital, International Value Advisers, Classic Fund Management AG and BWM AG. These key minority shareholders hold a total of 49,268,604 M&C shares, representing approximately 43.6 percent of the M&C shares not already owned by CDL.
M&C’s independent directors, who have been advised by Credit Suisse, consider the terms of the final offer are fair and reasonable, and intend unanimously to recommend that M&C shareholders accept the final offer, according to the company.
The final offer values the entire issued and to-be-issued ordinary share capital of M&C at £2.23 billion. The maximum cash consideration payable by CDL amounts to £776.29 million, which will be funded through a combination of internal cash resources as well as funds made available to CDL under a credit facility.
Benefits of the Privatization
In a statement, CDL noted the company has been a highly supportive shareholder since M&C’s initial public offering on the London Stock Exchange in 1996.
"Taking M&C private is in line with CDL’s strong focus on boosting recurring income and enhancing underperforming assets," said Sherman Kwek, CDL’s group CEO. "We are pleased to have garnered the support of M&C’s independent directors and key minority shareholders. The offer enables shareholders to exit an illiquid stock at a significant premium. We believe that a privatized M&C will be in the best position to navigate the increasingly challenging and competitive global hospitality landscape with agility and nimbleness. M&C will be able to leverage CDL’s significant resources, comprehensive real estate capabilities and global network to reposition its assets and drive sustainable hotel performance."
Following completion of the final offer, CDL intends to work with M&C’s management team and employees to meet the operational challenges faced by M&C and to identify opportunities to improve the operating and financing efficiency of its hotels by leveraging CDL’s infrastructure, network, financial resources and execution capabilities, according to the company.
However, given these operational challenges, CDL leadership believes the team will have to become increasingly involved in the operational and financial management of M&C. CDL expects M&C will continue to own, lease, manage, franchise, invest in and/or operate hotel assets across a wide geographical landscape. CDL will continue to evaluate opportunities and may make changes to individual hotels within M&C’s portfolio to meet the challenges facing its business, according to the company.
Approvals and Next Steps
As M&C owns land in New Zealand, the final offer is subject to a New Zealand Overseas Investment Office (OIO) Pre-Condition relating to the granting of consent and/or receipt of applicable exemptions under the New Zealand Overseas Investment Act 2005 and the New Zealand Overseas Investment Regulations 2005 for the indirect acquisition of interests in sensitive land and significant business assets in New Zealand that would occur if the final offer takes place and is successful.
The making of the final offer by the publication of the offer document will take place within 28 days following the satisfaction of the OIO Pre-Condition (or waiver if permitted by the U.K. Panel on Takeovers and Mergers). When the final offer becomes unconditional, M&C will apply for de-listing from the Official List of the U.K. Financial Conduct Authority.
If any dividend, distribution or other return of value is declared, made, paid or becomes payable by M&C on or after June 7, the final offer consideration would be reduced accordingly. In such circumstances, M&C shareholders would be entitled to retain the dividend, distribution or other return of value declared, made or paid.
Barclays Bank PLC and Merrill Lynch (Singapore) Pte. Ltd. are acting as the joint financial advisers while Linklaters LLP is acting as legal adviser to CDL.