Offer Update
March 06 2003 - 5:14AM
UK Regulatory
RNS Number:3719I
BIL (UK) Limited
06 March 2003
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE
UNITED STATES OF AMERICA, CANADA, AUSTRALIA OR JAPAN
BIL International Limited 6 March 2003
CASH OFFER BY HSBC
ON BEHALF OF BIL(UK) LIMITED
FOR THISTLE HOTELS PLC
ANALYSIS OF UNDERLYING VALUE
BIL notes the Thistle board's rejection of its Offer and its statements
regarding the underlying value of Thistle outlined in its announcement of 4
March 2003 titled "Rejection of BIL International Limited's ("BIL") offer".
* BIL believes that the Offer represents an opportunity for Thistle
Shareholders to realise their investment in Thistle with certainty, at a
price of 115 pence per share, against a background of poor trading
performance in the UK hotel market and an uncertain outlook.
* Thistle has compared the Offer Price to the three month and 12 month
average prices for Thistle Shares, based on the period up to 20 February
2003. BIL believes that this fails to address that Thistle's share price has
been supported by the bid speculation which has surrounded Thistle during
the past year including, inter alia, Thistle being in a formal offer period
from 4 November 2002 to 9 January 2003, as a result of certain announcements
by Orb. Following the ending of this offer period and the Thistle trading
statement of 16 January 2003, Thistle Shares fell to a 12 month low of 89
pence per share on 29 January 2003. The Offer represents a premium of
approximately 29.2 per cent. to this price.
* Thistle's multiple of enterprise value to pro-forma EBITDA* for the year
to 29 December 2002 (as derived from the Offer Price) represents a premium
of approximately 35 per cent. to the average corresponding multiple of a
peer group of listed UK hotel companies (shown in Appendix 1),
notwithstanding that the peer group includes Six Continents which is itself
the subject of an offer.
* The Offer Price of 115 pence represents a multiple of approximately 22.1
times Thistle's reported adjusted earnings per share from continuing
operations for the year ended 29 December 2002, compared to an average for
the peer group of 11.4 times. Using a pro-forma adjusted earnings per share*
for Thistle for the year ended 29 December 2002, a multiple of approximately
27.2 times is derived; a premium of approximately 138 per cent. to the peer
group.
* Equally, the enterprise value of Thistle derived from the Offer Price
represents a multiple of 8.5 times Thistle's pro-forma EBITDA* for the year
to 29 December 2002, which exceeds the average corresponding multiple of 8.4
times derived from comparable recent transactions in the UK hotel sector
(shown in Appendix 1).
* Thistle has compared the Offer to its net asset value ("NAV"). BIL
believes that NAV based valuation methods are appropriate for property
investment companies, but not for hotel companies.
* BIL considers that an earnings based valuation approach is more
appropriate for hotel companies, as they are significantly different to
property investment companies in a number of ways, including:
- Capital expenditure - hotels generally require significant maintenance expenditure, the cost
of which is typically borne by the hotel owner, while property investment companies usually
pass these costs on to tenants.
- Income - unlike hotel companies, UK property investment companies tend to be characterised by
commercial leases with upward only rent reviews.
- Cost base - the cost base of a hotel company is typically significantly higher than that of a
property investment company.
In addition, Thistle's calculation of NAV fails to take account of the current
value of its long term debt or of its contingent capital gains tax.
Further detail of BIL's views on the underlying value of Thistle is set out in
Appendix 1.
* See Appendix 2 for method of calculation
Enquiries
BIL
Arun Amarsi +65 6228 1427
HSBC
Neil Goldie-Scot +44 (0)20 7991 8888
Rory Wade
Marcus Ayre
Brunswick
Jonathan Glass +44 (0)20 7404 5959
Simon Holberton
Terms defined in BIL's announcement dated 4 March 2003, (the "Offer
Announcement") have the same meaning in this announcement.
The directors of BIL and BIL (UK), accept responsibility for the information
contained in this announcement. To the best of the knowledge and belief of the
directors of BIL and BIL (UK) (who have taken all reasonable care to ensure that
such is the case), the information contained in this announcement is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
This announcement has been issued by HSBC Bank PLC, which is regulated by the
Financial Services Authority, and which is acting as financial adviser to BIL
and BIL (UK) and no one else in connection with the Offer and will not be
responsible to anyone other than to BIL and BIL (UK) for providing the
protections afforded to customers of HSBC Bank PLC, or for providing advice in
relation to the Offer.
The Offer is not being made, directly or indirectly, in or into or by use of the
mails or by any means or instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or by
any other facilities of a national, state or other securities exchange of the
United States, nor is it being made, directly or indirectly, in or into Canada,
Australia or Japan. Accordingly, copies of this announcement and any related
documents are not being, and must not be, mailed or otherwise distributed or
sent in or into or from the United States, Canada, Australia or Japan, and
persons doing so may render invalid any purported acceptance of the Offer. The
availability of the Offer to persons who are not resident in the United Kingdom
may be affected by the laws of their relevant jurisdictions. Thistle
Shareholders who are not resident in the United Kingdom should inform themselves
about and observe any applicable requirements of their jurisdiction. Any person
(including, without limitation, any nominee, trustee or custodian) who would, or
otherwise intends to, or who may have a contractual or legal obligation to
forward this announcement and/or any related document to any jurisdiction
outside the United Kingdom, should read the relevant paragraphs in the Offer
Announcement before taking any action.
APPENDIX I
An analysts meeting was held on 4 March 2003. The Panel has determined that new
information was disclosed at that meeting. At the request of The Panel, the
information in this appendix is being published in compliance with Rule 20.1.
The bases and assumptions for all information used in this appendix are set out
in Appendix II.
Comparable Companies
Few "pure" hotel comparables exist. Those believed by BIL to be most comparable
to Thistle are detailed below, together with their trading multiples as at 3
March 2003. The multiples for Thistle are derived from the Offer Price and the
pro-forma results for 2002, the method of calculation for which is set out in
Appendix II.
2002
Company Share price Enterprise EV /Sales EV/EBITDA EV / EBITA P/E ratio
value
(03/03/03) (FRS 13)
Six Continents 600p #6.7bn 1.8x 7.5x 10.5x 14.5x
Whitbread 534p #2.7bn 1.3x 6.7x 9.7x 10.9x
De Vere Group 270p #532m 1.8x 7.0x 10.0x 11.3x
MacDonald Hotels 181p #197m 1.4x 6.1x 7.5x 10.2x
Jarvis Hotels 94p #156m 0.9x 4.1x 6.7x 10.1x
Average 1.5x 6.3x 8.9x 11.4x
Thistle - 158.4 61.0 41.6 4.2p
financials (#m)*
Thistle - multiples 115p #515m 3.3x 8.5x 12.4x 27.2x
* 2002 pro-forma continuing operations (See Appendix II for method of
calculation)
2003
Company Share price Enterprise EV /Sales EV/EBITDA EV / EBITA PE/ratio
value
(03/03/03) (FRS 13)
Six Continents 600p #6.7bn 1.8x 7.2x 9.9x 15.5x
Whitbread 534p #2.7bn 1.3x 6.2x 8.8x 9.8x
De Vere Group 270p #532m 1.7x 6.5x 9.2x 10.4x
MacDonald Hotels 181p #197m 1.3x 5.5x 6.9x 8.2x
Jarvis Hotels 94p #156m 0.9x 4.3x 7.1x n/a
Average 1.4x 6.0x 8.4x 11.0x
Thistle - 168.5 67.7 47.4 5.9p
financials (#m)*
Thistle - multiples 115p #515m 3.1x 7.6x 10.9x 19.5x
* 2003 consensus forecast (See Appendix II for method of calculation)
As demonstrated above, the Offer price represents a significant premium to the
peer group trading multiples.
Comparable transactions
Set out below are those recent UK hotel sector transactions which BIL considers
to be most comparable to its Offer for Thistle.
Target Acquiror Enterprise EV /Sales EV /EBITDA EV/EBITA P/E ratio Date
value
(FRS 13)
Heritage Bank of Scotland #235.0m 2.4x 8.0x 10.2x n/a 23/04/01
MacDonald Hotels
Posthouse Htls Bass #810.0m n/a 6.2x 7.4x n/a 04/04/01
Regal Hotel Gp Regent Corp #269.4m 2.3x 9.0x 10.6x 7.2x 11/07/00
Menzies Hotels Banc Boston #45.0m 1.9x 7.5x 8.7x 3.3x 28/06/00
Swallow Group Whitbread #749.4m 3.6x 11.6x 14.5x 19.7x 22/11/99
Scottish Paramount, #52.3m 2.4x 8.4x 9.3x 9.4x 18/08/99
Highland Alchemy Partners
County Hotels Regal Hotel Gp, #107.8m 2.3x 8.0x 11.2x 15.2x 11/01/99
Intermediate
Capital
Average 2.5x 8.4x 10.3x 11.0x
Thistle offer 3.3x 8.5x 12.4x 27.2x
multiples*
* Derived from 2002 pro-forma continuing operations (See Appendix II for method
of calculation)
As demonstrated above, the Offer compares well with other comparable
transactions, notwithstanding that a lower control premium is appropriate given
that BIL already owns 45.8% of Thistle. The comparable transactions set out
above took place when market conditions were more favourable.
Why net asset value ("NAV") is not applicable
NAV is not an applicable valuation benchmark as unlocking Thistle's net asset
value would be extremely difficult. BIL believes that an NAV valuation approach
is more appropriate for a property investment company.
The true cost of unlocking asset values in Thistle would need to take account of
the following prohibitive factors:
* CSFB research* indicates limited alternative uses for Thistle's hotels; in
particular it indicates that conversion costs could be substantial and in
some cases prohibitive and that the vast majority of the properties would
not be considered prime residential locations.
* The high cost of exiting the hotel business; in view of:
- Redundancies;
- central function closure costs;
- costs of exit of management contracts.
* The true cost of debt:
- Contractual early redemption cost of approximately #413 million (a premium of approximately #154
million to par value) (see Debenture Valuation).
* CGT liability:
- Up to #90 million potential CGT liability, as disclosed in Thistle's 2001 annual report and
accounts.
* Credit Suisse First Boston in their note on Thistle dated 26 November 2002
Thistle is not a property company
Thistle is not a property company and there are compelling reasons why it should
not be valued as such, including:
* Capex
Hotels - have higher ongoing capex requirements typically borne by the owner.
Property - typically tenants are responsible for maintenance.
* Income
Hotels - ongoing business with no assured income stream.
Property - typically commercial property leases with upward only rent reviews.
* Cost base
Hotels - typically higher than for a property company.
Property - lower cost base (central only).
The Orb transaction
The sale by Thistle of 37 hotels to Orb in 2002 was achieved at or near to NAV,
however, BIL believes that comparisons with the Orb transaction are not
applicable in this instance for a number of reasons:
* Location
- The sold hotels were regionally diverse, the remaining hotels are London focused
* Guaranteed income
- Under the terms of the management agreement between Thistle and Orb, Orb are guaranteed #45 million
EBITDA p.a. for 10 years by Thistle (subject to a maximum liability to Thistle of #90 million).
* Debt free
- The hotels were sold to Orb on a debt free basis. Thistle has retained on its balance sheet
approximately #260 million of debentures (at book cost).
* Central costs
- Thistle continues to run the disposed hotels under management contracts and therefore retains the
central costs in relation to them
* Alternative use
- Some of the hotels sold are believed to have residential development potential
Debenture valuation
The net debt figure stated in the Thistle preliminary results does not take into
account the market value of the listed debt instruments. Due to the high coupon
on the instruments, the theoretical early redemption cost is a significant
premium to the book value of Thistle's debt, adding a further #154 million to
its book value, giving Thistle an overall net debt position of #49 million.
Net debt / (cash) - Book (#108)
Net debt / (cash) - FRS 13 (#40m)
Net debt / (cash) - Full redemption cost #49m
10 3/4% First Debenture Stock 2014
Book value of debt #200.0m
FRS 13 value of debt* #260.6m
Benchmark gilt Ex. 12% 2013-2017
Current redemption yield on gilt* 4.24%
Theoretical redemption cost of debenture #325.1m
7 7/8% First Debenture Stock 2022
Book value of debt #59.3m
FRS 13 value of debt* #63.9m
Benchmark gilt Tr. 8% 2021
Current redemption yield on gilt* 4.36%
Theoretical redemption cost of debenture #87.7m
* as at 3 March 2003
See Appendix II for sources
In recent early redemptions of comparable debentures, a negotiated position has
been agreed with bondholders, resulting in redemption costs below the full
theoretical cost. Based on the recent Six Continents debenture redemption, BIL
believes that the cost of redeeming Thistle's debentures under an agreed deal
could be approximately #380 million.
Details of recent debenture redemptions are set out below for reference. These
show that since May 2001 the cost of agreed deals has increased.
Date of repayment Reference gilt Additional yield on
details gilt
Six Continents 10 3/8% 2016 27 Feb 2003 Tr. 8% 2015 100 bp
Great Portland Estates 10 3/4% 2021 12 Apr 2002 Tr. 8% 2021 105 bp
Great Portland Estates 9 1/2% 2016 16 May 2001 Tr. 8% 2015 140 bp
British Land 12 1/2% 2016 1 May 2001 Tr. 8% 2015 210 bp
British Land 8 7/8% 2023 1 May 2001 Tr. 8% 2021 215 bp
See Appendix II for sources
UK bid premia
Change of control premia
A full change of control premium is not appropriate where the offeror already
owns a substantial stake in the target company.
Analysis of UK public offers since 1992, where offerors held a 30-50 per cent.
stake prior to the offer, and Rule 9 offers indicate a low premium is paid, due
to a diminished change of control.
1 day premia 1 month premia
1992 - 2002* 15.3% 25.3%
* Excluding investment trusts and property transactions
Share price Offer premium
Thistle share price - 29 January 2003 89p 29.2%
Thistle share price - 20 January 2003 100p 15.0%
See Appendix II for sources
76.1p of Thistle's current value is the cash on its balance sheet. Cash should
attract no premium.
APPENDIX II
BASES AND SOURCES OF INFORMATION
Comparable companies
i. Share prices are the closing middle market prices on 3 March 2003, as sourced
from Topic.
ii. Where appropriate, debt has been marked to market using closing prices on 3
March 2003, as sourced from Bloomberg and Datastream.
iii. Historical financial information has been sourced from the most recent
published annual reports and accounts and, where relevant, interim and
preliminary results announcements for each company.
iv. Financial information for each comparable company is restated to show
continuing operations excluding exceptional items and goodwill amortisation,
(where the applicable information is available).
v. Forecast financial information has been sourced from published analyst
research notes as follows:
Six Continents Credit Suisse First Boston, 4 February 2003
Whitbread ABN AMRO, 1 November 2002
De Vere Group Credit Suisse First Boston, 17 February 2003
MacDonald Hotels Brewin Dolphin, 6 February 2003
Jarvis Hotels UBS Warburg, 14 October 2002
Comparable transactions
i. Enterprise values have been derived from public announcements or offer
documents published at the time of each transaction, analyst research notes,
SDC Platinum and from other public information.
ii. Historical financial information has been sourced from the most recent
published annual reports and accounts and, where relevant, interim and
preliminary results announcements for each target company at the time of
each transaction.
iii. Financial information for each comparable transaction is restated to show
continuing operations excluding exceptional items and goodwill amortisation
(where the applicable information is available).
Thistle information
i. The financial and other information relating to Thistle has been (unless
otherwise stated) extracted from:
a. the Thistle preliminary announcement of audited results dated 3 March
2003 containing the results for the Thistle Group for the financial year
ended on 29 December 2002; and
b. the Thistle annual report and accounts 2001 and other information made
publicly available by the Thistle Group.
ii. The pro-forma 2002 results for continuing operations have been derived as
follows:
a. The results from disposed operations have been removed;
b. The management fee from the operation of the disposed hotels has been
adjusted to reflect an estimated full year's fee of #7.3 million, derived
from a Credit Suisse First Boston research note dated 26 November 2002;
c. Interest income and expense have been adjusted to reflect a full year's
reduction in Thistle's debt balance and a full year's interest income from
its cash balance; and
d. A 30 per cent tax rate has been assumed in calculations of profit after tax.
2002 2002 2002 2002 2002
Actual Disposed Management fee Interest adj Pro-forma
(prelims) (prelims) (pro-forma) (pro-forma) (pro-forma)
Turnover 190.0 (33.0) 1.4 158.4
- growth (2.3%)
EBITDA 71.9 (12.4)(a) 1.4 61.0
- margin 37.8% 37.4% 38.5%
EBITA 49.2 (9.0) 1.4 41.6
- margin 25.9% 27.3% 26.3%
PBT 30.9 (9.0) 1.4 5.8(b) 29.1
- margin 19.1% 27.3% 18.4%
Assumed tax charge 30.0%
PAT 21.8 20.4
- margin 11.5% 12.9%
- EPS 4.5p 4.2p
- Adjusted EPS 5.2p
(a) - Disposed depreciation charge calculated as 3/12ths of the 2001 disposed
depreciation charge
(b) - Interest adjustment calculated by removing cost of 3 months interest at
5.4% on #174 million of debt and adding #3.5 million equivalent to 3 months
interest income (source: Thistle 2001 annual report and 30 June 2002 interim
statement)
iii. The 2003 financial information is derived from a consensus of named
analysts' research notes, as published by Multex on 3 February 2003, updated
to include disclosed Credit Suisse First Boston forecasts.
iv. The figure of 76.1 pence of cash has been derived from the cash balance
disclosed in the Thistle preliminary announcement of audited results dated 3
March 2003 containing the results for the Thistle Group for the financial
year ended on 29 December 2002 and the existing issued share capital of
Thistle of 482,382,087 Thistle Shares (as indicated by Thistle's records at
Companies House as at 3 March 2003).
v. Historical share prices for Thistle have been sourced from the Daily Official
List as at the close of business on the relevant date.
Debenture valuation
i. The market value of Thistle's debenture debt as at 3 March 2003 is sourced
from Datastream.
ii. The benchmark gilt has been sourced from the relevant clause in the
prospectus for each debenture.
iii. The redemption cost of Thistle's debenture debt has been calculated in
accordance with the relevant clause in the prospectus for each debenture.
iv. The redemption yield on the relevant reference gilt has been sourced from
Bloomberg.
v. The details on recent debenture redemptions have been sourced from the
relevant company announcements or circulars.
Bid premia
i. The one day and one month bid premia in relation to UK public offers since
1992, where offerors held between 30 per cent. and 50 per cent. of the
offeree company prior to the offer, have been sourced from SDC Platinum.
Other
i. Wherever enterprise value ("EV") has been used in this announcement, debts
taken into account in that valuation have been calculated in accordance with
FRS 13.
This information is provided by RNS
The company news service from the London Stock Exchange
END
OUPUUUUGWUPWGUQ