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There's room for improvement in Mulpha's hotel bid
It will have to up the ante if it hopes to shake out sufficient acceptances, writes Bryan Frith
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August 31, 2006
IF the market is any guide, Mulpha Australia's takeover bid for Grand Hotel Group won't succeed unless it increases its offer price.
Mulpha announced an offer of 85c for each GHG stapled security almost two weeks ago. Although GHG has performed poorly, Mulpha's bid nevertheless looked skinny.

GHG's share price opened the year at around 80c and moved to above 90c in March, when the company released its half-year results, and announced revaluations which increased its asset backing from 97c to $1.05 a security. The share price had been drifting since then and was down to 82c when Mulpha unveiled its offer. That meant Mulpha was offering a premium of only 3.65 per cent.

The directors put out a holding statement advising shareholders to take no action pending further advice. The share price immediately began to rise.

Last week, GHG reported a sharp increase in profit and further property revaluations, which lifted its NTA to $1.33 a share.

The share price has continued to gain ground and closed yesterday at 96c - 11c, or 13 per cent, higher than Mulpha's offer. There has been speculation that friends, but not associates, of GHG's largest shareholder, the Singapore-based Tuan Sing group, may be behind some of the buying. Tuan Sing owns 25 per cent of GHG.

Before bidding, Mulpha put its foot on 14.99 per cent of GHG by entering into a pre-bid acceptance agreement with B&B, which holds 8 per cent in its own right, with associates owning a further 7 per cent.

B&B and its associates bought into GHG in 2003 after an attempt by Parker Global Strategies to gain control of the board and to put in a manager associated with Greg Paramor's James Fielding group failed narrowly. Parker sold the 12 per cent strategic holding it had built for its tilt at the company.

GHG specialises in the ownership and operation of luxury and mid-market hotels. It was floated in 1996, when it owned 50 per cent of the Grand Hyatt Melbourne and 100 per cent of the Hyatt Centre in Perth, both five-star hotels. The float was underwritten by McIntosh Securities but it was heavily under-subscribed, which financially stretched the sharebroker, and led to its takeover by the US investment bank Merrill Lynch.

GHG subsequently expanded into the mid-market through the acquisition of Tourism Australia Group, which owned the Chifley and Country Comfort hotels.

B&B had ambitions of channelling further assets into GHG to make it a major hotel trust, but it was never able to gain any traction with Tuan Sing. So B&B has now decided to move on. It's thought that Mulpha, which also owns hotel assets, may have a similar plan - to revitalise GHG by taking over the management and pumping additional assets into the group.

Mulpha's bid is really a partial offer dressed up as a full bid. Mulpha is bidding for all of GHG and the offer is conditional on a minimum acceptance of more than 50 per cent.

But the intention is to keep GHG listed, so Mulpha won't end up owning more than 60 per cent of GHG. Mulpha has entered into an agreement with the Hong Kong stockbroker Sun Hung Kai to place any securities in excess of 60 per cent. If the broker cannot place them all immediately, it will purchase the excess and subsequently dispose of them in an orderly manner.

It's thought that structure may be aimed at Tuan Sing which, for whatever reason, is keen for GHG to remain listed.

But while the Mulpha structure is akin to a partial bid, it is important because shareholders who are unhappy with GHG's chronic under-performance, and wish to depart, can quit their entire holdings, whereas a partial bid would require them to retain some of their stock.

Under the pre-bid agreement, B&B must accept once Mulpha's relevant interest reaches 40 per cent. The agreement contains a profit-sharing arrangement should there be a higher offer. If Mulpha increases the offer price, B&B would receive all of the increase, but if a third party makes a higher offer, and Mulpha doesn't match it, then Mulpha receives the first additional 3c and beyond that it's shared 50-50. The market is saying if Mulpha wants to shake out acceptances, it will have to up the ante.