SINGAPORE (June 11): Jefferies Singapore is keeping its “buy” recommendation on City Developments (CDL) with an unchanged target price of $12.00, amid a new takeover offer to acquire the remaining 34.8% stake in Millennium & Copthorne Hotels (M&C) for 685 pence ($11.89) a share.
The latest offer is at a 37% premium to M&C’s last closing price before the announcement. It is also a 10% premium to the earlier offer of 620 pence, and a 9.5% premium to the highest price that M&C shares have traded at in the last 10 years.
See: CityDev launches another takeover bid for Millennium & Copthorne Hotels with 685 pence per share offer
“In our view, there is a higher probability of the deal going through because of the better offer as well as undertaking from key minority shareholders,” says analyst Krishna Guha in a flash note on Tuesday.
“[The offer price] implies a 20% discount to FY18 book of 853 pence and 13.8x FY18 EV/EBITDA,” he adds.
The way Guha sees it, the deal is expected to be positive in the long run as the group repositions the assets.
However, he notes that CDL will incur significant and targeted near-term capex.
“Management believes that M&C faces a number of challenges and a highly competitive landscape, which include pressure on profit margins,” Guha says. “As such, significant expenditure is required across many of the properties as part of a long-term strategy focused on unlocking value.”
To meet the challenges and capex, the analyst believes it would be best for M&C to be a private entity.
“In such a set-up, M&C would benefit from direct access to [CDL’s] broader network, financial resources and execution capabilities,” he says. “We are hopeful that the repositioning and unlocking of value will be positive for [CDL’s] minority shareholders in the long term despite the significant capex in the medium term.”
As at 3.51pm, shares in CityDev are trading 4 cents up at $9.01.
