Orient-Express likely to spurn $1.8bn Tata offer

The board of Orient-Express Hotels seems likely to reject the $1.8-billion takeover offer made by the Tatas, following reports their offer was undervalued and Orient share price was falling below the offer price.

The board is expected to meet by Thursday to take a call on the offer made by Indian Hotels, operators of the Taj group of hotels.

While shares of Orient-Express had their biggest gain in more than three years on the Tata offer, the stock is languishing almost nine per cent below the offer, evidence that traders who bet on mergers and acquisitions see the company's board rejecting the bid, according to FBN Securities Inc.

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Public shareholders don't have the majority of voting rights, and the company already rebuffed previous overtures from Indian Hotels and turned down a $60-a-share takeover offer in 2007, when Orient-Express was trading near an all-time high.

"Most experienced arbs on the Street have been through this rodeo more than once," Yemi Oshodi, New York-based managing director of M&As and special situations at WallachBeth Capital LLC, said in a telephone interview.

"We all lost money the first time; we're not about to lose money again. Until we see a friendly deal on the table, nobody is touching this thing."

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In an interview to Business Standard, R K Krishna Kumar, Vice-Chairman of Indian Hotels, repeatedly said the offer was friendly and not a hostile takeover bid.

He also said the bid was good for all shareholders of Orient-Express, its employees and of course for the Tatas. The Orient-Express has not responded to the Tatas' offer as yet except to say that the offer was "unsolicited".

The Orient-Express board is meeting on Thursday to take a call on its earnings, but is also expected to announce a new CEO to take over from interim CEO Philip Mengel, who served for more than a year. The board will take the call on Indian Hotels offer on the same day.

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The meeting comes in the backdrop of British financial services company Barclays saying in a report that the Tata offer of $12.63 a share for Orient-Express was "far below our estimated value".

In a research note, Barclays Analyst Sule Sauvigne said that Barclays' asset value analysis for Orient-Express "generates a value of nearly $18 per share and is based on an estimated value per key for each of the company's assets."

After surging the most since March 2009 on news of the bid, Orient-Express shares ended October 18 below the offer price, where they have stayed since.

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The stock closed last week at $11.55, 8.6 per cent below the offer price, signalling traders are skeptical the deal will go through, said Kathleen Renck, New York-based head of event-driven research at FBN Securities.

Because Orient-Express's corporate structure keeps most of the voting power out of the hands of public shareholders, an unsolicited offer is less likely to succeed, she said.

Interestingly, Orient-Express has a poison-pill clause that prevents any of its internal shareholders from acquiring more than 15 per cent of the company without an agreement by both parties.

Shareholders are also powerless as its dual class of shares gives absolute powers to the board of directors. The Orient Express board had earlier rejected a $60-a-share offer made by Dubai-based Jumeriah Assets.