Mandarin Oriental acquisition bid shows it’s better to invest in Jardine Matheson
Analysts say proposed buyout undervalues Mandarin Oriental International significantly
[SINGAPORE] Conglomerate Jardine Matheson ’s offer to acquire minority stakes in Mandarin Oriental International in its attempt to buy out and delist the hotel investment and management group is yet another proof that investors should invest in the holding company and not the units in its stable.
In 2021, Jardine Matheson made a bid to acquire the remaining 15.1 per cent stake in Jardine Strategic Holdings that it did not already own at US$33 a share – a 30 per cent discount to its estimated net asset value of US$46.67 a share.
The conglomerate had said then that acquiring the rest of the stake in Jardine Strategic and then delisting the counter – which had a secondary listing in Singapore – would simplify the corporate structure of the Jardine empire.
The low bid made dissenting shareholders haul Jardine Strategic to the Bermuda court – whose laws apply to that acquisition – to have the fair value of the shares appraised. The case has yet to conclude.
On Oct 17, Jardine Matheson announced acquisition of the minority stakes of 11.96 per cent in Mandarin Oriental International at US$2.75 a share, with another US$0.60 a share thrown in as special dividend from a recent partial sale of One Causeway Bay to a total of US$3.35 a share.
Citi analysts commented that it was an “ingenious” way to create value for Jardine Matheson shareholders because the way the deal was structured would help Jardine Matheson to achieve “significant progress” in its five-year total shareholder returns programme.
One Causeway Bay’s partial divestment at US$925 million will net US$758 million in proceeds, which will be distributed to Mandarin Oriental International shareholders as special dividend at US$0.60 a share.
The Citi analysts said that the cash dividend to be paid to Jardine Matheson will amount to about US$667.6 million, more than the US$415.5 million required for it to privatise Mandarin Oriental International and with US$252.1 million to pocket.
Paying the price
Although Jardine Matheson stands to benefit, Mandarin Oriental International minority shareholders could be paying the price.
Mandarin Oriental Group reported adjusted net assets worth approximately US$4.3 billion as at Jun 30, but the proposed buyout is valued US$100 million less at US$4.2 billion.
On a per share valuation, adjusted net assets value – which took into account the fair value of investment properties and market value of the group’s freehold and leasehold interest – was US$3.42, or 2 per cent higher than the offer price and special dividend of US$3.35.
Analyst Nicolas Van Broekhoven, who publishes on research portal Smartkarma, thinks that the proposed buyout is a good deal for Jardine Matheson, but not so much for Mandarin Oriental International minority shareholders as it undervalues Mandarin Oriental International “significantly”.
He commented: “Jardine (Matheson) is effectively paying for the fair value of One Causeway building, and is getting global hotel operations for a bargain price.”
Mandarin Oriental minority shareholders have co-financed US$650 million over seven years for the construction of One Causeway Bay, Van Broekhoven noted, but can only partly participate in the financial gain of the office-retail mixed development.
Van Broekhoven commented: “It is obvious that Mandarin Oriental minorities are leaving a lot of upside on the table if we just look at the current 44 hotel portfolio Mandarin owns/operates. A back of the envelope calculation would easily justify a valuation of US$5.5-6 billion for Mandarin Oriental today. “
However, analyst David Blennerhassett of Quiddity Advisors was of the view that the offer is a fair valuation for Mandarin Oriental International.
The analyst, who had anticipated when Jardine Strategic buyout was announced that Jardine Matheson would next privatise Mandarin Oriental International, said he would buy Jardine Matheson shares for a mid- or long-term investment.
Regardless of whether Mandarin Oriental is undervalued by Jardine Matheson or not in its buyout offer, investing in the holding company would surely put investors in a more advantageous position than those of its subsidiaries.
