Millennium & Copthorne (MLC), what now?

A “covert war” 2007-2017

Back in April 2007 speculation was rife that a takeover of the MLC minorities was imminent. MLC hit 726p per share but the board refused to comment. Investors realized the false hypothesis and started selling. An 18 month bear market ensued, global events took control, by October 2008, MLC hit 160p per share.

Now surely, majority owner City Developments would seize the opportunity. But no. In statements, chairman Kwek Leng Beng spoke of the company being hit by a “financial tsunami”. At a meeting, I recall Kwek commenting on the stock collapse “MLC shareholders are lucky – some Singapore stocks are 1/10th of 2007 highs”.

But rather than state its intentions, City embarked on a 10 year “creep” operation that quietly increased its MLC stake. In 2008, City Developments held 52% of the subsidiary. By 2017 it was 65.2%. It is likely the Panel was involved as the operation abruptly stopped in 2017, short of the ownership level that would have forced an acquisition. The “creep” operation damaged institutional trust in City.

The MLC board in 2014 also took the unfortunate step of stopping its property valuation reviews. Ultra-low interest rates had been kind to Millennium & Copthorne’s trophy assets. Estimates did the rounds that the stock’s net asset value was over £10 per share, but the company obscured the market valuation, and hence the fact that its ownership strategy generated low returns on equity.

Kwek’s dividend tinkering (3 major gyrations in 2 decades) alienated holders. The payout was cut in 2008 (to conserve £19m) but had risen since 2009, only to be cut again in 2015 back to 6.42p per share. The 2015 cut was badly received.

Source: www.dividenddata.co.uk

UK institutional investors were disillusioned with MLC’s ownership model. The shares had underperformed its peers, the larger hoteliers who employed franchising. The MLC listed minority was illiquid, with little analyst coverage.

According to a major institution “UK institutional investors have been pressing for an exit, via a liquidity event for years.” Brexit made sterling listed assets cheap. By October 2017, after 2 years of talking down MLC’s prospects, Kwek finally moved.

Source: www.google.com

What went wrong? What are the reasons for the failed offer?

There was a severe failure in “form” in the offers right from the start:-

So what’s next?

Conclusion

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Please be aware that the following disclosures of Material Interests are relevant to this research note:

Millennium & Copthorne Hotels       Relevant disclosures:    <1,2>

City Developments                                  Relevant disclosures:    <NA>  

  1. The analyst has a personal holding in the securities issued by the company or of derivatives linked to the price of the company’s securities.
  2. Collins Sarri Statham Investments Ltd has clients who hold either shares or CFD positions in this security.

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