MCK - Millennium & Copthorne Hotels NZ Limited

[BlackPeter]

Says all the conditions have been satisfied ( ie OIO ) or waived ( ie - the 90% acceptance condition? )

They gonna take all they can at $2.80 but not necessarily get to 90% is my take on it.

They increase to $3 I reckon ACC and Milfies might cave and then it will be game over....

Agree with your interpretation re conditions.

Re improving the offer - they said in their letter that they won't increase the offer and not make a subsequent takeover offer within the next nine months. Which means either holders need to sell or be prepared to wait for a long time or hope they are telling porkies.

Accordingly, $2.80 is the final and best price that CDLHH NZ is willing to pay under the Offer. CDLHH NZ will not vary the Offer Price again and will not make a subsequent takeover offer under the Takeovers Code for the ordinary shares in MCK within nine months from the date of this letter.

So, yes - from todays perspective the offer is clearly ridiculously low.

Which means either selling now or potentially waiting (without divvies?) for a long time until they make their next takeover offer.

I guess the question is - whose pain is larger? Their pain for having to keep paying the listing costs, or the pain of retail holders for having in some cases a quite large investment parcels with very low liquidity, potentially no income and at some stage an unknown sell price depending on future developments.

On the other hand - if the big holders would have agreed to $2.80, than they would not need to threaten holders, they could just take over the lot at their price. Which means ACC (and others) are so far not happy. Might be worthwhile waiting until they manage to change that.

[Basil]

"A bird in the hand is worth two in the bush".  $2.80 is a ~ 40% discount on the independent appraisal report mid point of valuation ($4.70).  There are other listed property companies trading at similar discounts that pay outstanding dividends, e.g. ARG at a 33% discount to NTA, paying 6.65% tax free, (worth 10% gross to 33% taxpayers).

[BlackPeter]

"A bird in the hand is worth two in the bush".  $2.80 is a ~ 40% discount on the independent appraisal report mid point of valuation ($4.70).  There are other listed property companies trading at similar discounts that pay outstanding dividends, e.g. ARG at a 33% discount to NTA, paying 6.65% tax free, (worth 10% gross to 33% taxpayers).

True.

Still wondering how the big investors are going to play it. Not sure when ACC bought their parcel, but they well might have paid more for it.

I hear NZSA is weighing in again as well, and wondering whether the independent directors will change their tune.

Lets see how the story plays out.

[Basil]

Investors face a clear choice.  Take a certain $2.80 for some or all of their shares which is payable on 15 May, (I can unpack why its that date more if people want me too) or wait and see what happens in due course.

CDL have committed to no increase in price with the current takeover in the terms of reference pertaining to their agreement with Salt and others so they are legally bound not to increase the price this time and that a further takeover cannot be made before 9 months from their letter of 22 April, so that's at the earliest, 22 January 2026.

Not advice, as every shareholder needs to make their own decision, but there does appear to be a playbook that CDL are working too.  They had very similar deadlines and processes and about a 9 month delay between takeover offers when they took over the U.K. operations of a listed company there.  Crackity has more detail.  There's a very real but not certain chance there will be a higher offer at some stage in the future, quite possibly early 2026, for those with the patience to hold out.

The other option worth considering that I am pondering is having a type of "each way" bet on the outcome.  The offer document allows partial acceptance or total acceptance or do nothing and total rejection. Maybe accepting the $2.80 for some of one's shares and taking a position that there is likely to be a better offer for the rest, in due course makes sense.  Hmmm

P.S. In a behind the paywall article on businessdesk, ACC have stated they are not accepting the offer as its egregiously low and unreasonable.  They hold ~ 4.5%.

[Basil]

Interesting price action at the close with all available stock at $2.80 bought.  Obviously, that buyer getting decent volume at that price and paying brokerage has no intention of losing that brokerage cost and selling into the takeover offer at $2.80 next month which begs the question seeing as ACC see the offer as egregiously low, might they with their very deep pockets or some other major investor bid the share price slightly above the $2.80 takeover price next week thereby throwing the cat amongst the pigeons with this attempted takeover ?  Interesting times for MCK shareholders.  Could be an interesting week coming up next week with independent directors set to give their verdict on the new price on Monday.

I am increasingly of the view that if one holds out, CDL are going to have to offer ACC and other holdout's materially more next year to finalize the takeover.  Question is, how much more is materially more?  That's the $64,000 question.  Hmmm

[Basil]

ACC hold 4.52% and these are extracts of their view

The Accident Compensation Corporation said CDL Hotels Holdings New Zealand's revised bid for Millennium & Copthorne Hotels NZ shares is "unreasonable and opportunistic" and it won't accept it. "While ongoing ownership of shares in a highly illiquid company is not an attractive prospect for shareholders, we believe the alternative on offer is a materially worse option," it said. The Accident Compensation Corporation (ACC), which holds about 4.5% of the shares in Millennium & Copthorne Hotels NZ (MCK) (excluding preference shares), is a long-term investor and "will continue to work to maximise value for minority shareholders".

According to ACC, CDL's bid represents a 40% discount to the midpoint of the valuation range determined by an independent valuer and more than a 50% discount to the midpoint after adjusting for CDL's stated intention to redeem the preference shares at $1.70. Under pressure already "The share price prior to the takeover announcement had been under pressure for a considerable time due to selling pressure from a large shareholder, whom CDL purchased the remaining shares from in October 2024," said ACC. "This selling, coupled with the lack of liquidity that CDL had been unwilling to address, cyclically low earnings and acquisitions which appear to be value destructive, had resulted in MCK's share price falling to levels not seen since 2016." It went on to say "the unreasonable nature of the bid" is highlighted by MCK's recent investment (in a joint venture with CDL) in the Brisbane Sofitel and the acquisition of the Mayfair Hotel – assets which CDL is now offering to take off shareholders' hands for cents in the dollar.  Similarly, the process to redeem the preference shares at a materially lower price than the shares is "egregious".  An independent adviser's valuation range was $4.40 to $5.00 per ordinary share, with a midpoint of $4.70.   "The current offer of $2.80 would seem to fall well short of that," said NZ Shareholders Association CEO Oliver Mander.   The offer "doesn't reflect anything like the underlying value of the company, even at $2.80," he said.

I think people need to know where ACC stand on this.

[Basil]

My updated view having read all 41 pages of the Target company statement and the Northington independent valuers 42 page report. 
1. I think Northington have done an outstanding job, I cannot fault their report.
2. It is noted there is ample evidence to support their going concern valuation of MCK with the hotel assets priced at the low end of 14 times EBITDA and high end of 16 times.  Supporting evidence includes prices CDL themselves and MCK it5self paid recently for assets including a) the full takeover of Millenium and Copthorne Hotels United Kingdom, 16.2 times, the recent acquisition of half share in Sofitel Brisbane 17.9 times and the very recent acquisition of the Mayfair Hotel in Christchurch, 15 times EBITDA.
3. It should be noted that Northington's report encompasses capitalization of head office costs to run MCK at 9 times and that the midpoint at $4.70 is in fact a lot lower than the asset backing due to capitalization of management costs
4. The balance sheet is strong and MCK have a $120m line of credit facility that is largely untouched.
5. Only entering into a 9-month hiatus with Salt and others that agreed to accept the $2.80 unconditional bid before another takeover can be launched is a really big clue as to what is highly likely to happen in due course.
6. Happy to take ACC at their word that CDL are trying to take over MCK at over an egregious 50% discount to NTA when you factor into account the conversion terms of the preference shares of which there are many, 52.7m, (conversion is at the 20 day VWAP price)  CDL own 91.34%
7. CDL's response that the shares are illiquid and we're doing you a favour by taking them off your hands at $2.80 holds no sway with me.  Their motive is clear.  Conditional offer at $2.25 was Act one in this play. Unconditional offer at $2.80 is Act 2 in this play and they are hoping to get as many as possible at this huge discount.  Another takeover with a materially higher offer in due course is Act 3 and that possibly might lead to a contested valuation regarding compulsory acquisition if they hit the 90% threshold next year, maybe Act 4 in this play.  I see no logical reason why they won't try and take this over with a much higher price in due course, especially with all the advantages of redeeming the preference shares for a very low price.  They paid 16.2 times EBITDA to take over Millenium and Copthorne hotels in the U.K..  Why wouldn't they pay 14 times ERBITDA for the N.Z. operations which is the low side of Northington's valuation at $4.36 ?  Then there's accrued earnings since 31 December 2024 and if they're not paying a dividend that needs to be factored into account as well.

Decision. I will not be accepting $2.80 for any of my shares.  CDL will need to make me a serious offer starting with a $4 handle in 2026 and I'll reconsider my position, until then, I'm sitting tight and will see how this plays itself out.

Note that on page 29 of the independent report that MCK are budgeting on a ~ 23% increase in hotel revenue in 2025 and we are gradually recovering from a cyclical low in earnings after Covid.  Before Covid this company was making eps of 31 cps and they have added a lot of hotel capacity since then so we could see as much as 40 cps in earnings per share in due course.

Their 9-month standdown period before they can make another takeover offer ends on 22 January 2026.
I look forward to seeing a substantially higher offer in due course.

[Poet]

Good post Basil
I think i will be holding on to my shares as well.

[Stoploss]

Good post Basil
I think i will be holding on to my shares as well.

Agree & Likewise .

[Fiordland Moose]

Great write-up Basil

[Basil]

Independent directors recommend you DO NOT ACCEPT the higher $2.80 offer.
https://api.nzx.com/public/announcement/450563/attachment/442126/450563-442126.pdf

[BlackPeter]

Interesting bid in the system: 500k shares at $2.78. I reccon this will support the SP as long as it stays live.

Somebody with spare dry powder in play (unless this is a strawman of the Kwek family, but this would be illegal, wouldn't it)?

I guess the directors recommendation (in full) says it all. Kweks playing with minority shareholders and they clearly have the longer financial breath. If they decide to play hardball, this could take a long time to get right for minorities.

On the other hand, as Basil pointed out - the MCK takeover in the UK was (with ok-ish outcome for the shareholders) done in less than two years after a similar scenario.

I sold some of mine (my MCK parcel somewhat increased over the recent months) last week for $2.80 at market. While I had to pay for the broker, at least this made sure that the Kweks didn't benefit from their tactic of intimidation.

Intend to keep the rest (still ~10% of our NZ portfolio) until they come up with a fairer price.

Just wondering, though what all this means for CDI. Maybe its not the best idea after all to be minority shareholder in a company controlled by super rich people with a tendency to abuse their financial power?

[Basil]

Interesting price and depth action today. Now bid at $2.80 and no need to wait for your money for those prepared to get low balled at that price.

Will be interesting if it gets bid above $2.80 which wouldn't surprise me.

[Basil]

After Salt and another institution accepted the $2.80 they've subsequently only got another ~ 214k shares lifting their stake by 0.2% to 78.88%, so far.
https://api.nzx.com/public/announcement/450726/attachment/442310/450726-442310.pdf
Annual meeting is at the Grand Millenium Auckland on 30 May at 1.00 p.m. and will be a very good chance to meet other minority shareholders and hopefully have a chat with ACC's investment manager.   It will also be a good chance to thank the independent directors for showing the backbone they have.
https://api.nzx.com/public/announcement/450814/attachment/442422/450814-442422.pdf

[lorraina]

Hmmmmmmmmmmmmm.?
I think you should buy a few CDI shares.
Only one reason.You could then make a day of fun and mayhem on the 30th at The Grand Millennium.
CDI agm starts at 10am,and after lunch at 1pm MCK's agm.
I look forward to watching your antics as the meetings will be online.....lol