Confifi deal with Keells Hotels

Minority shareholders of Confifi Hotels are in a dilemma over whether to accept an offer of acquiring a 100 percent of issued shares of three Confifi hotels, made by the Keells Hotels Plc’s (KHP) since asset values of the hotels are greater than the offered price.

This has come on the back of an ‘independent opinion’ sought by Confifi Hotel Holdings Limited (CHHL), Riverina Hotel and Eden Hotel where directors of the three hotels have been unable to recommend the offer to shareholders.

“Directors of the CHHL having carefully considered a number of aspects and the Report of the Independent Advisor, First Guardian Equities (Pvt) Limited, are not altogether convinced that the Keells Hotels Ltd., Share swap offer, considering the market prices of the shares of the Confifi Hotel Holdings Ltd., the Book Net Asset Value per share and current replacement cost can be described as a fair exchange for the shares of Confifi Hotel Holdings Limited,” Directors of CHHL, B. Surendra and K. Kaviratne said in a communiqué to shareholders.

They further said that the opinion submitted by the independent advisor in addition to giving the valuations based on statistical data given in the report, show valuations of the CHHL shares based on book value, replacement cost and liquidation.
They are of the opinion that the Sri Lankan Hotel valuations should be based on asset value rather than on the earnings of the relevant property.

“The CHHL share value in the books as at March 31, 2007 amounted to Rs. 174/- per ten rupee share, and based on that valuation the share swap offer value at current market prices at about Rs. 90/- per ten rupee share is only 52% of the value of the net assets. It is granted that valuation of Sri Lankan properties engaged in tourism activities is somewhat currently unattractive on account of the ongoing ethic conflict on the country.

That being the case, we are also inclined to agree with the independent advisor’s comment regarding valuation of Sri lankan Hotel shares based on earnings as that method maybe inappropriate in the current country situation. On the other hand, pricing the share swap offer at a value which yields less than 52% of the net asset value is to say the least unattractive,” they noted, saying the Keells Hotels Limited share offer was not a reasonable exchange and as such they found it difficult to recommend.

The directors of the Riverina also came up with a similar argument saying that the Riverina share value in the books as at March 31, 007 amounted to Rs. 84.14 per ten rupee share, and based on that valuation the share swap offer value at current market prices which is Rs. 41.25 per ten rupee share is only 51% of the value of the net assets.

Eden directors also having considered some of the important issues relating to this matter, stated that from a shareholders’ point of view, greater emphasis should be placed on the importance of the net assets value of the shares of Eden Hotel Lanka Limited in any assessment to determine an equitable price.

“The net asset value of a Rs. 10/- ordinary share of Eden Hotel Lanka Limited as at March 31, 2007 amounted to Rs. 16.71. It should be noted that the value as at 31st march 2007 was based on a property revaluation done back in March 31, 2005.”

Professor M.T.A. Furkhan, Chairman Confifi Hotels said he is aware of this, but the shareholders will have to decide before the offer closes on Tuesday. Early last month, KHL announced voluntary offers to acquire 100 percent of issued shares of each of the three listed hotel companies in the form of a share swap where KHL would issue its own shares. Where five shares of KHL for every one share held in Riverina five shares of KHL for every share in Eden and 11 shares of KHL for every one share held in Confifi.

Professor Furkhan said that Confifi Management Services (CMS) which hold the three hotels has agreed in principle to accept the offer in respect of all the shares held by CMS in the three hotels at the respective swap ratios. CMS has 30 percent in all the hotels. KHL in the conditions has stated that it needs 51 percent of CMS for the deal to go through. “So they need 21 percent more from the public,” a stock analyst noted.

“This is a swap of shares and KHL shares has value . We think it is prudent for the shareholders to accept the offer,” a KHL source said. The offer is for roughly 174 million shares worth at around Rs. 1.39 billion.