Singapore tops Malaysian bid for Grand Hotel Group

Singapore's Tuan Sing Holdings bids for Grand Hotel Group valuing the Australian hotel chain at $221 million.
Tuan Sing Holdings of Singapore bid for 100% of AustraliaÆs Grand Hotel Group yesterday, valuing the company at A$285 million ($221 million). The offer has topped a bid by Malaysia's Mulpha International Berhad. Grand Hotel has yet to respond to Tuan Sing's offer.

Grand Hotel Group (GHG) owns four Hyatt hotels (including the Grand Hyatt Melbourne and Hyatt Regency Perth), two Chifley hotels and one Country Comfort hotel in Australia. The net book value of the hotels as of June 30, 2006, stood at A$343.6 million. GHG is listed on the Australian Stock Exchange and comprises of two entities, Grand Hotel Company and Grand Hotel Trust, which are joined in a stapled security structure and trade as one security.

GHG management issued a statement yesterday that it would "meet to review the offer and update security holders shortly" advising that no action be taken until then. GHG chairman, Bill Conn, also said the piecemeal asset sale proposal proposed by the board would still be tabled at the annual general meeting scheduled for November 28.

Tuan Sing is a diversified investment holding company in property, retail and technology. It has held a 25% stake in GHG since 1997. The bid has been made by its indirect wholly owned subsidiary, Tuan Sing (Australia). In the rationale for its offer, Tuan Sing says its own interests as well as the interests of shareholders are best served by a takeover by Tuan Sing rather than the Mulpha offer or the board's plan for a piecemeal sale. Tuan Sing also notes that the company's shares ôhave traded significantly below net book value for almost the whole of that timeö (referring to the time it has held the shares ie. 1997-2006) and further that ôan alternative to the stapled securities structure would be more suitable for operating a hotel business and that GHG should be privatised".

Tuan SingÆs offer is conditional upon achieving a 90% holding and upon shareholders rejecting the asset sale proposal. Netting out the 25% it already owns, this suggests another 65% of outstanding shares must be tendered. Reflecting the urgency of the situation, Tuan Sing, a Singapore-listed company, sought and received a waiver from the exchange for seeking prior shareholder approval for the bid. In explaining the rationale for the waiver, Tuan Sing cited that the delay due to procedural requirements could ôput it at a severe disadvantageö.

Tuan Sing has bid A$1.10 per share, a total outlay of A$213.4 million. The price represents a 30% premium to the competing offer from Mulpha and a premium of 35% over the one-month weighted average price on the exchange. Tuan Sing has also highlighted that the offer ôrepresents certainty for shareholdersö compared to the liquidation process proposed by the GHG board.

GHG has been in play since August 18 when Mulpha International Berhad, a Malaysian-listed company, made an unsolicited bid for GHG, offering A$0.85 per share. The day of the Mulpha bid, GHG traded at A$0.84. Before launching the offer, Mulpha entered into a conditional contract to buy a 14.99% stake held by Babcock & Brown at the offer price. MulphaÆs core business is property, with its Australian real estate assets, including hotels, estimated at A$1 billion. The addition of GHG to its portfolio would make it the largest operator of luxury hotels in Australia. The Mulpha bid is conditional upon 50% acceptances.

On October 23, in response to the Mulpha offer, the GHG board announced an alternative plan to sell its assets individually. In a release to the Australia Stock Exchange, Conn said: ôBy managing the sale process ourselves, GHG security holders are more likely to maximise value and potentially receive more then the current NTA (net tangible asset) value of A$1.33 per security".

On October 25, Tuan Sing issued a clarification that it ôdid not have sufficient information to enable it to assess the meritsö of the piecemeal sale proposal and that media reports suggesting it was supporting the asset sale were incorrect. One week later it has launched an offer itself.

ANZ Investment Bank is advising Tuan Sing. Merrill Lynch and Freehills are advisors to GHG.
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