MCK - Millennium & Copthorne Hotels NZ Limited

[Interested321]

I suspect that CDL is doing the buying.  If it was ACC purchasing it would have made more sense for them to accumlate the shares well before the nine-month period after the takeover expired.  However, Southern Lad has a really good point.  That CDL can not increase their holding due to the Takeovers Code.  Does anyone else have a perspective on that?

If CDL is not purchasing the shares then it would be great if ACC was the buyer.  Alternatively, it could be another disruptor such as Harvest Lane - that often makes purchases in low-ball takeover offers hoping for a higher price.  That would be good news as I personally feel that MCK is valued well over $5. 

It will be an interesting few days while we wait.  Any further ideas?

[Crackity]

I suspect that CDL is doing the buying.  If it was ACC purchasing it would have made more sense for them to accumlate the shares well before the nine-month period after the takeover expired.  However, Southern Lad has a really good point.  That CDL can not increase their holding due to the Takeovers Code.  Does anyone else have a perspective on that?

If CDL is not purchasing the shares then it would be great if ACC was the buyer.  Alternatively, it could be another disruptor such as Harvest Lane - that often makes purchases in low-ball takeover offers hoping for a higher price.  That would be good news as I personally feel that MCK is valued well over $5. 

It will be an interesting few days while we wait.  Any further ideas?

I don't think it can be CDL yet  due to the creep provisions as you have mentioned.

Could definitely be Harvest Lane though they havent played in NZ much so far as far as I know.

They seem to be a bit low key after the Mayne / Cosette issues.

This week will be interesting

[Basil]

One possible theory might be that CDL have been in discussions with significant shareholders indicating they're prepared to pay $3.30.

Institutions are likely in communication with each other and some holders might have indicated a willingness to accept that price.

ACC might have said they're not interested and might have told other instructions they'll give them the same price now on market.

It could be an interesting week or this could play itself out over several months but MCK is definitely "in play" and I think $3.30 is too cheap.

For what its worth Disc I hold 0.152% of the ordinary issued shares. Nobody has approached me in discussions about a possible takeover at $3.30 but if they did they would be told exactly what I told Blair Cooper at ACC after the 2025 annual meeting. Any further offer has to have a "4" as the first digit at a minimum.
I'm not saying I would sell at $4 rather anything lower than that would not even be a starting point for consideration.

Just a theory...

[Basil]

Disclosure requirements on becomming a substantial shareholder, 5% or more or a movement of 1% when you already have a holding of 5% or more, are 1 working day so perhaps the situation will be a little bit less opaque by close of business today.

If not then it appears neither ACC or CDL was the buyer which adds further intrigue.

[Scooter]

https://www.nzx.com/announcements/466844

Looks like Basil was right.   Well done. ACC have really been increasing their holding
Interesting times

[Basil]

Good stuff. ACC are now effectively in control of any future takeover attempt.  Blair Cooper of ACC has my contact details. Anyone else with a material interest in this is welcome to PM me.

[Scooter]

I'm only a small holder in this Basil. Just a little over 1500 shares.   Glad it's ACC increasing their holding as they won't let this go easily (cheaply).  I'm happy to hold and wait.

[Basil]

I wish I could say I am surprised that it appears that CDL are again trying to low ball remaining shareholders, but I'm not. That said the share transactions could have simply been a proactive move by ACC to build a blocking stake without any prior contact from CDL in recent weeks, we simply cannot rule that possibility out.

As I mentioned earlier in this thread I was very impressed with Blair Cooper who spoke very well during the annual meeting last year and made it clear they are keen to see a deal done for all minority shareholders at a fair price. That's why I am especially pleased to see ACC step up.

You folks will recall the mid point of the independent valuation range was $4.70. There's no one better that I can think of than Mr Cooper at ACC to get a price as close to this as possible.

Patience is likely to be well rewarded.

[Basil]

Interesting week.  Its clear $3.30 is now the new floor and we closed at a fresh all time high of $3.60.

[Interested321]

The purchase by ACC was really interesting and significant during the week.  I can see ACC wants to get fair value for their investment.  With their size they can effectively block a takeover offer or afford to hold onto the shares for a really long time.

I acknowledge that the mid-point of the independent valuation for MCK ordinary shares, in 2025, was $4.70.  However, MCK has both ordinary and preference shares listed.  MCK ordinary shares have a current value/share of $3.60 and capitalisation of $380 million.  MCK preference shares have a current value of $1.70/share and capitalisation of $90 million.  The takeover offer is only for the ordinary shares and a letter on Feb 3 2025 from CDL said they were prepared to acquire the preference shares at $1.70 on market.

Am I correct that the preference shares should have the same value as the ordinary shares?  If that is correct then CDL is getting a real bargain offering to purchase the preference shares for $1.70.  That would save them a lot of money.  If they do the money they save, by purchasing the preference shares at $1.70, should be added to the fair value of the ordinary shares.  Under my calculations that would value the ordinary shares at approx $6.50 each.

In that reasoning I see the ordinary shares valued at approximately $6.50.  However, I am not totally sure of my calculations and would appreciate comments on that. 

[Basil]

Welcome to the forum Interested321 and thank you for your post.  That issue has probably already been addressed in the target company statement and independent valuers report.  I'm a bit time poor at present so feel free to have a read of the whole document here https://www.takeovers.govt.nz/assets/Transactions/Millenium-Copthorne-Hotels-New-Zealand-Limited-2025-Target-Company-Statement.pdf

P.S. On a brief look through this afternoon I see what you are getting at.  The independent valuation of $4.70 per share is valuing the entire company including the redeemable preference shares (RPS) at $4.70 per share.  CDL already own 91.34% of the RPS and from memory redemption is based on the 20 day VWAP.  In effect they can redeem these shares for $1.70 once they have control of the company.

The independent valuation report did not form a value on the RPS but valued the company based on the total number of shares including the RPS at $4.70 each.

If they make an offer of $4.70 with ACC support In effect they will only pay ~ $1.70 for the 4.57m Redeemable preference shares they don't currently own = $7.77m  There are 16.974m ordinary shares outstanding they don't own and if they pay $4.70 for those that's $79.78m
Total possible takeover cost is $87.55m for a total ordinary and preference shares outstanding of 21.544m = effective price per share to gain control of $4.06.

Rather than saying the outstanding ordinary shares are worth X and the preference shares are worth Y I think its best to look at the net effective price for total control and ask if that's a feasible deal and I think it is.  I see no logical reason why ordinary shareholders should accept any offer materially lower than $4.70 considering where the preference shares are priced and the advantage that confers upon CDL but ultimately this will come down to what ACC is willing to accept and what CDL are prepared to pay,

I'm not a huge believer in coincidences and I think there's a pretty good likelihood that ACC stepping up and paying $3.30 for some shareholders shares last week is in response to CDL offering that amount and some weak holders indicating they're prepared to accept that.  For ACC to pay that they must think they have a good chance of negotiating a future offer of four dollars something.    ACC's move to take an effective blocking stake makes this a fascinating game of Cat and Mouse.

[Basil]

This is a good time to release a copy of my email communication with Blair Cooper at ACC of June 2025.

Thank you for what you have done to date to try and get minority shareholders a better deal.  It was much appreciated how you came out in the media and called the $2.80 offer egregiously low.  I also think you came across very well in the meeting outlining that there is a deal to be done but also expressing your disappointment that MCK themselves are prepared to pay decent multiples for recent property transactions but then low ball minority shareholders for those same assets.

How do you reconcile this was the question you asked and of course there is no reconciliation other than CDL wanting to take advantage of their dominant shareholding and the manner if which they have operated the company to try and strong-arm shareholders who are disaffected with the returns.  A fully imputed dividend yield of just over 1% is pretty miserable by any yardstick.

Its clear that ACC are the kingmaker to any future possible successful takeover and CDL might approach you for preliminary discussions well before the next date they can officially launch a new takeover being 22 January 2026, so while its fresh in my mind I just wanted to share my perspective as an investor of more than 40 years experience owning ~ 100,000 shares.

1. In my opinion Northington did an outstanding job and I concur with their view that $4.70 was fair value as at February 2025.  I expect accrued EPS of just over 20 cps in FY25 so approx. $4.90 becomes the benchmark in early 2026 but if valuing on an EBITDA basis with increased FY25 earnings and improving FY26 outlook it could be materially higher.

2. I would highlight in page 29 of their report that MCK's budget for FY25 shows hotel revenue increasing from $109.5m in FY24 to $134.4m.  New Christchurch hotel and gradually improving economic conditions.

3. Also well worth noting as you alluded too in the annual meeting, MCK paid 17.9 times EBITDA for the Sofitel Brisbane and 15.0 times for Mayfair Christchurch.  Very important to note they paid 16.2 times EBITDA for the 35% of Millennium & Copthorne Hotels plc in the U.K. in their June 2019 takeover.

4. They have played shareholders for a fiddle and taken their shareholding up from 70.8% less than a year ago to just on 84% now, at rock bottom prices and only have 16% to go.  Northington on page 6 of their report believe that CDL will be motivated to get to 90% and I believe that's even more so the case now that they have ~ 84% compared to ~76% before the derisory $2.80 low ball takeover attempt.

5. The Chair told me after the meeting he thought the offers to date were 'insulting" and he "nearly fell off his chair" with the original offer of $2.20.

6. You mentioned to us that the highest price the shares had ever traded at was $3.20.  I'm a little concerned you feel that sets some kind of relevant price point and in any case may be above this figure before year end.  I would like to draw your attention to the most recent large property company takeover on the NZX being Arvida.  I believe this sets THE most relevant / recent benchmark.  It is well worth noting that a) At the time the directors only recommended this offer of $1.70 if it fell inside the valuation range of the independent valuers report, which it subsequently did.  b) the offer price was at a 65% premium to VWAP at the time c) It was pitched at 83% of NTA, see NZX release here NZX, New Zealand's Exchange - Announcements, Arvida Board Unanimously Recommends Stonepeak Acquisition  I note a 65% premium to VWAP of MCK would be about $2.80 x 1.65 = $4.62 and 83% of adjusted NTA $5.71 (page 24 Northington report) = $4.74.  This takeover concluded as recently as November 2024 and that makes it highly relevant in my opinion despite the nature of the property assets being different.

7. A full takeover is now relatively inexpensive in the overall context of complete control of assets worth north of a Billion dollars. ~16.6m x $4.90 = ~ $81m and I note the company has a line of credit with its bankers of $120m, largely unused according to the Northington report.

8. M Social Hotel in downtown Auckland is clearly a highly valuable asset that's "in play" and I am not convinced they are disclosing all relevant facts to all shareholders.  Likewise other surplus land holdings could be worth well north of disclosed values.

9. The value of CDL Investments land holdings should be worth more in a lower interest rate environment prevailing in 2026.  I don't know that company well but every shareholder I speak with tells me the land holdings are valued on an extremely conservative basis.

10. You are not bound in any way to any previously indicated price you stated you would be prepared to do a deal at.  For example, its seems clear 15 times EBITDA on FY25 earnings and / or prospective FY26 earnings could be a materially different number than based on FY24 earnings.  Besides that, they only need ~ 8% of shareholders to agree to a higher number and the rest of us have no rights of objection so ACC are clearly in a position of strength and considerable influence with any future price negotiations.

As you have pointed out, we are close to the low point in the economic cycle and inbound tourism still remains below pre-pandemic level's.
Seeing as they only have to pay a fair price now for the remaining ~ 16% of the company, I see no logical reason why shareholders shouldn't hold out for a price within the valuation range suggested by Northington $4.40 - $5.00 plus especially considering that's based on FY24 earnings and there's approx 20 cps+ accrued earnings in FY25.

CDL have acquired ~ 13.2% extra shares in the last year at dirt cheap prices.  Its almost a masterclass in how to takeover a company as cheaply as possible.  Surely its not too big an ask that they pay a fair price for the remaining 16% ?

I'm happy for you to share my thoughts with your colleagues and to discuss at any time in the future.

Thanks again for your excellent work to date in helping minority shareholders get a fair and reasonable outcome.  Keep up the good work, the battle for a fair deal has only just begun.

P.S. Since June 2025 I have lifted my shareholding to 160,000 shares.

[Scooter]

Great email Basil.    Did you get a reply?

[Basil]

Thanks. Yes but I don't think it's fair on Mr Cooper to release the contents on here.

His subsequent recent action last week lifting ACC 's stake speaks for itself in terms of a reply, and showing his intent.

I have also significantly increased my shareholding in  MCK since that email.

[Southern Lad]

Interesting question about the RPS and where they might fit into a future takeover offer from CDL.  Here's some background:

1.  Prospectus for 2014 issue which sets out full terms - https://app.companiesoffice.govt.nz/companies/app/service/services/documents/1E9C8FD0C67B34502D5211D3B57D062A

Share issued as RPS rather than ordinary shares was said to be done to suit CDL and ability to issue shares quickly!

Note that post issue there was a pro rata MCK share cancellation resulting in the cancellation of 698 in every 1,000 ordinary and RPS.

2.  As at March 2025 CDL owned 91.34% (48,169,766 shares) of the RPS and ACC owned 1.78% (938,848 shares).  There were 154 RPS shareholders in total.

3.  The RPS are non-voting which presumably impacts their value relative to the ordinary shares.  CDL didn't appear to need to own 100% of the RPS to complete its 2025 takeover attempt.

4.  MCK can choose to elect to redeem the RPS but can only do if at least the holders of 75% of the RPS agree.  As CDL owns 91.34%, then they can arguably pass this resolution (subject to any NZX restrictions?).  The redemption price is the the greater of 64 cents per share and the 20 day VWAP of the RPS on the NZX.  As the RPS are thinly traded, maybe the market price could be manipulated by interested parties.

5.  The terms of the RPS can be amended if agreed by the board and the holders of 75% of the RPS share.  Once again perhaps CDL can do this (subject to any NZX restrictions).

6.  There is a good discussion on the RPS and CDL's stated intentions and its implications in the Independent Directors statement on page 8 of the Target Company Statement (see link in Basil's post above).  It suggests that CDL had intended to redeem the RPS if the takeover was successful, which if this occurs at a price below the offer price for the ordinary shares will increase the value of the ordinary shares as Interested321 points out.

As noted the 2025 takeover offer was for the ordinary shares only with CDL offering to also buy RPS on market for a lesser price.

If a takeover succeeds, do the RPS remain listed in the NZX or will CDL redeem them.  If not redeemed, what protections would exist for RPS shareholders if MCK was delisted after a successful takeover?

Given ACC holds a good chunk of the non-CDL held RPS, and given they have now some power in relation to a future CDL takeover offer for ordinary shares, will they be motivated to negotiate a pre-bid deal with CDL that also delivers a fair outcome for the RPS or increases the value of the ordinary shares to reflect the valuation upside of a 'cheap' RPS redemption?

Alternatively the independent directors of MCK should continue to make some noise to protect minority RPS shareholders if another similarly structured CDL takeover is used again.