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Wednesday, November 24, 2010

SunCity, Sunway to combine? Analysts see a current trend of M&As

PETALING JAYA: Market observers are speculating that a marriage of sorts is on the cards for Sunway City Bhd (SunCity) and Sunway Holdings Bhd, after both companies had their shares suspended from trading for two days from yesterday, pending a material announcement on a corporate exercise.

According to several analysts polled by StarBiz, the potential marriage between the sister companies would most likely be consummated via a share-swap, non-cash arrangement. The pricing for the potential deal, nevertheless, remained a question.

SunCity's last traded price was RM4.49 per share, while that of Sunway was RM2.25.

A merger between SunCity and Sunway was seen likely, as such an exercise would create synergies for the companies' property businesses. For instance, SunCity's would then be able to draw on Sunway's construction, building materials, and trading operations, resulting in meaningful cost savings for the group.

The potential merger would also create a larger entity, with enhanced liquidity for the group's accelerated business growth.

According to Maybank Investment Bank Bhd's property analyst, Wong Wei Sum, the potential merger would likely result in a combined market value of RM3.46bil for the enlarged group. On top of that, the exercise would also result in the enlarged group having a combined land bank totalling 2,642 acres and a gross development value of projects worth a total of RM25bil.

Analysts were non-committal, though, on which of the two entities would emerge as the holding company from the potential deal, but they were pretty sure that no third-party would come into the picture.

The potential merger between SunCity and Sunway seemed to coincide with the recent flurry of mergers and acquisitions (M&As), involving several major players in the local property and construction industry.

According to analysts, a consolidation trend was seen emerging in the industry as players attempt to enlarge their market capitalisation to boost their capacity, while minimising competition, to bid for larger projects be it in the local market (particularly those under the 10th Malaysia Plan) or overseas.

For instance, IJM Land Bhd and Malaysian Resources Corp Bhd (MRCB) yesterday signed a memorandum of understanding to merge in an exercise seen by many as a move to leverage on each other's strengths, while boosting their chances of being appointed as the main developer of the prized Rubber Research Institute land in Sungai Buloh.

With MRCB being majority-owned by the Employees Provident Fund, the chances of winning government-rolled out projects are high indeed. Other prized projects to bid for include the extension of the Klang Valley's light rail transit system, new buildings in Putrajaya as well as the cleaning up of the Klang river.

Less than a month ago, UEM Land Holdings Bhd and Sunrise Bhd had already embarked on an M&A route, with the former proposing to take over the latter to boost its land bank and diversify its product offerings into high-rise residential and integrated commercial development.

The proposed acquisition would also enable UEM Land to capitalise on Sunrise's strong brand and expertise to enhance its market position in the industry and enhance its appeal to high-end local and foreign buyers.

By The Star

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