The deal is expected to close at the end of May. Mandarin Oriental will receive approximately $90 million for its stake, resulting in an after-tax gain of $75 million, to be recognised in 2009.
ôBasically as a company we continuously review our portfolio of assets on a regular basis, assessing the value of properties etcetera,ö says Sally de Souza, a spokesperson for Mandarin Oriental. She goes on to say that the initiative for the deal came from STDM and describes the value of the offer as ôattractiveö.
The agreed purchase price puts the value of the hotel at HK$1.6 billion ($205 million), which compares with a book value of $15.7 million for Mandarin Oriental's 50% share as of the end of 2007. The Macau hotel contributed $10.2 million to the company's Ebitda in the same year.
Under the agreement, Mandarin Oriental and Shun Tak will have the right to participate equally in any future increase in the value of the hotel site above the agreed HK$1.6 billion, if the property were to be redeveloped or sold to a third party.
STDM will run the hotel under a new brand, but in the meantime, Mandarin Oriental will continue to manage the property for up to two years to ensure a smooth transition. And the hotel chain is not leaving Macau as it will manage a new 213-room hotel there that is due to open next year.
While the deal requires no approval from Mandarin Oriental's shareholders, it does require approval from the shareholders of both STDM and Shun Tak.
Macau is going through tough times as the economic downturn along with visa restrictions take their toll on its main industry, gambling. In December, gaming revenue was down by 9% year-on-year. The main cause of this dip was a drop in the spending of VIP gamers, which fell 14% year-on-year.