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Thursday, November 25, 2010

Sunway, SunCity in RM4.5b merger

Tycoon Tan Sri Jeffrey Cheah plans to merge the construction and property firms he controls, Sunway Holdings Bhd and Sunway City Bhd (SunCity), in a deal worth RM4.5 billion to compete more effectively at home and in the region.

The move, which is likely to create Malaysia's fourth largest property company by market size, is the third property-related merger to be anounced this month.

Earlier this month, UEM Land Holdings Bhd said it wanted to merge with Sunrise Bhd to create the country's largest property group with a market size of over RM9 billion.

On Tuesday, IJM Land Bhd and Malaysian Resources Corp Bhd announced their merger plans to become the second largest group.

"This merger gives us the benefit of size, synergy and branding," Cheah, the Sunway group's founder, told reporters at a press conference yesterday.

He said the timing for such an exercise was good, with the share prices of both companies having come up to "a very equitable" level.

The two firms' assets and liabilities will be acquired by a new company, Sunway Sdn Bhd, which will be listed in their place on Bursa Malaysia.

The deal, including the listing, is expected to be completed by the middle of next year.

The merged entity will potentially have a market capitalisation of RM3.5 billion, combined revenue of RM3.3 billion and total assets of about RM8 billion.

It will also have a presence in 12 high-growth markets in the region and over 9.7ha of landbank, Cheah said.

He dismissed a suggestion that the merger was a move to help it stave off any potential takeovers, saying it had more to do with right market conditions and the need to scale up for size.

"I am not fearful of being a takeover target," he remarked, adding that "when you have a bigger-sized company, you can take on bigger projects".

The two firms' businesses will be acquired by Sunway at an equivalent of RM2.60 for each Sunway Holdings share and RM5.10 for each SunCity share.

Sunway will pay with RM900 million cash and Sunway shares, with free warrants attached.

After the purchase, Sunway Holdings and SunCity will undertake a capital repayment exercise to distribute the proceedings to shareholders.

Cheah, who now owns 46 per cent of Sunway Holdings and 44 per cent of SunCity, said he would retain a controlling stake of about 44 per cent in the new entity.

The second largest shareholder will be The Government of Singapore Investment Corp, with a 12 per cent stake.

Shareholders will have to approve the merger at an extraordinary general meeting, at which Cheah will refrain from voting.

Sunway Holdings and SunCity yesterday reported third quarter net profits of RM48.5 million and RM138 million, respectively.

"Going forward, (with the merged entity), we're still confident of double-digit growth (in financial performance)," Cheah said.

Trading in both the stocks, which have been suspended since yesterday pending the merger announcement, will resume today.

Sunway Holdings was last traded at RM2.25 and SunCity at RM4.49.

By Business Times

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