Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He has owned units of Salt Funds Management’s Long-Short fund since January 2024.
Singapore’s City Developments Ltd seems to be living the old Chinese proverb – patience is a bitter plant, but its fruit is sweet – when it comes to its agonisingly slow takeover of Millennium & Copthorne Hotels New Zealand.
The opportunistic $2.25 per share offer it lobbed out of the blue at the start of the year to its poor cousin-minority shareholders of the NZX-listed hotel operator certainly left a sour taste in the mouths of the independent directors, who roundly rejected it with the backing of a Northington Partners-penned independent adviser’s report effectively saying: “you’re not even close, mate”.
More formally, Northington put a valuation of the hotel operator at between $696.2 million and $791.1 million, or $4.40-to-$5 a share.
And deeper in the weeds, the valuer went through two exercises – one with the Millennium & Copthorne NZ continuing to operate to get a $4.36-to-$4.89 price range, and one as an orderly ‘everything must go’ sale to achieve $4.45-to-$5.15 per share range.
Then things got interesting.
Singapore’s CDL went through its own Succession-style crisis where Sherman Kwek, chief executive and son of the firm’s patriarch executive chair Kwek Leng Beng, sought to oust daddy, prompting the elder Kwek to try to sack his son.
Peace ensued and Kwek Leng Beng dropped his court action, but the tensions remained clear at last week’s annual meeting where father and son were reported to have barely interacted with one another, and long-serving board member Philip Yeo interrupted proceedings to urge for good governance to prevail so it doesn’t have another situation where the majority can bully the minority.
Say what now?
Some of the minorities of Millennium & Copthorne NZ might’ve snorted into their coffee when scanning the reports on the CDL meeting to see that sentiment, especially after seeing what their big brother shareholder had put in front of them as a sweetener.
The Singaporean property developer came back to the table with an offer of $2.80 a share before the AGM – a price that will be seen by some as risible and others as enough to roll their eyes, take the cash and offer a breezy “byeee” on their way out the door.
Some Millennium & Copthorne NZ shareholders have been quick to cry foul, like Accident Compensation Corp’s investment arm calling the offer unreasonable and opportunistic, and that it made the not-ideal situation of holding a hard-to-sell asset a better option than cashing in.
Of course, the pitching of ACC’s rejection as a brewing fight between shareholders misses the point that CDL is the 800-pound gorilla in this tussle, owning three-quarters of the NZX-listed company compared to the state-owned workplace insurer’s 4% – there is no fight, only angst.
That’s presumably what was playing on the minds of shareholders who accepted the deal, such as Salt Funds Management and Australian boutique SG Hiscock & Co. After all, who wants to be captured by a domineering majority shareholder when that money can be put to better use elsewhere?
Which is almost how the best and last offer from CDL feels.
In its best impression of the perfectly innocent “I’m just asking questions” phrase, the Singaporean property developer made clear that it holds all the cards, even if it does have to heed the rights of the minorities: it can change Millennium & Copthorne NZ’s constitution, appoint new board members, change the strategy including the dividend policy. That's quite the hand.
Hold on for just one more day
It rejected Northington’s valuation as theoretical and not reflecting a practical outcome for the minorities, in that it has no plans to liquidate the portfolio and will keep operating hotels.
And since that was the basis for the change in valuing the underlying assets a few years ago to book value as opposed to market value, you can almost see its point.
Let’s just ignore the fact that the Singaporean parent promised to keep selling properties to rein in its uncomfortable level of debt and accompany S$600 million annual interest bill, and is revisiting previously shelved plans to list its UK commercial assets.
It just won’t sell the New Zealand assets, right?
So having got permission to go up to the 100% ownership from the Overseas Investment Office, CDL can continue to simply mop up shares at a rate of 5% a year under creep – verb, not noun – provisions for the next three years or so to cross the 90% threshold, at which point it can force minorities to accept an offer they can’t refuse, albeit they can seek an independent valuation to set the price as was the case with the recent takeover of Rural Equities.
And to be fair to the Singaporean company – of which the Kwek family owns almost half – it needs a win.
CDL’s shareholders weren’t impressed with the divisions on show at the annual meeting, especially given the SGX-listed shares are languishing at their own massive discount to net tangible assets and not far off 16-year lows.
Agitation, as they say, is contagious.
Which won’t do anything to alleviate the bitter taste in the mouths of Millennium & Copthorne NZ retail shareholders, who are feeling railroaded by the rough beast that is CDL.
Patience can be a virtue, but there’s also merit in recognising when something is a lost cause.
Image from Mike Enerio on Unsplash.
