RHB: City Developments’ takeover bid for M&C is long-term positive

City Developments signage on construction hoardingCity Developments signage on construction hoarding

City Developments’ revised bid for full ownership of London-listed Millennium & Copthorne Hotels is a long-term positive and should help the Singapore property developer better reposition the ageing hotel assets, RHB said in a note Monday.

RHB added that this offer for M&C was more likely to gain acceptance from minority shareholders than the previous bid, which failed by a small margin.

“We believe the latest offer is likely to gain a minority acceptance as it’s a 10.4 percent premium to the previous offer and comes at a time when market conditions have worsened considerably amid heightened trade war concerns and Brexit uncertainty,” RHB said.

On Saturday, City Developments said it launched another takeover bid for Millennium & Copthorne Hotels at 685 British pence a share, in a deal that values the hotel operator at 2.23 billion pounds, or around S$3.86 billion. The offer price of 685 pence, which will not be increased, is 65 pence higher than City Development’s previous offer for London-listed M&C in December 2017.

Currently, City Developments already holds around 65.2 percent of M&C, and the maximum cash consideration City Developments might pay is 776.29 million pounds, or around S$1.34 billion.

RHB also noted that City Developments has received irrevocable undertakings from minority shareholders holding 43.6 percent of the shares the developer doesn’t already own, meaning it only needs 6.5 percent more in acceptances to clear the offer’s threshold condition.

The brokerage said that if successful, the offer would significantly increase near-term capital expenditure, and would be slightly dilutive to City Developments’ pro forma earnings per share for 2018, but would also slightly boost its net asset value.

RHB estimated City Developments’ revalued net asset value, or RNAV, would rise by 3-4 percent as the brokerage currently values M&C at 550 pence a share.

It kept a Neutral call on City Developments’ shares, with a S$9.20 target price.

The shares jumped 5.55 percent to S$8.94 by 10:35 A.M. SGT.

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