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Saturday, November 6, 2010

UEM Land bid gets 40% votes

KUALA LUMPUR: UEM Land Holdings Bhd’s proposed takeover of Sunrise Bhd for RM1.39bil, or RM2.80 per share, has received an acceptance level of 40.3% from three major shareholders of Sunrise.

UEM Land managing director/chief executive officer Datuk Wan Abdullah Wan Ibrahim said the group had received irrevocable undertakings to accept its offer from Datuk Tong Kooi Ong, Tan Sri Tan Chee Sing and Datuk Lim Kim Huat

According to filings with Bursa Malaysia, Casa Unggul Sdn Bhd (a company controlled by Tong) owns 24.41% stake in Sunrise. Other shareholders include Phoenixflex Sdn Bhd (8.46%), Lim (7.24%), Tong (0.22%) and Tan (0.01%)

“We do not intend to maintain the listing status of Sunrise if the public shareholding spread of Sunrise is not met pursuant to the offer,” Wan Abdullah said at a briefing to announce the takeover offer on Thursday.

He said the proposed takeover was conditional upon UEM Land receiving valid acceptances of more than 50%.

“If we don’t get that (50%), we will take a walk (from the deal),” he said.

UEM Land will take the necessary procedures to withdraw Sunrise’s listing status if it secures more than 75% acceptance.

However, Wan Abdullah was confident the deal was “primed for success” given that the group had already received 40% acceptance level.

He said there were synergies between the two companies as UEM Land was a township developer while Sunrise was a niche high-end developer.

Sunrise has a market capitalisation of some RM1.24bil (as at Nov 2) while UEM Land is currently the country’s largest property company with over RM8.23bil in market capitalisation.The combined market capitalisation of Sunrise and UEM Land will be close to RM10bil.

UEM Land will be offering Sunrise shareholders two options under its proposed takeover offer.

Under the first option on share swaps, Sunrise shareholders will receive 1.33 UEM Land shares priced at RM2.10 apiece for every Sunrise share held.

The redeemable convertible preference shares (RCPS) option will see UEM Land issuing Sunrise shareholders RCPS at RM1 each based on 2.8 consideration RCPS per Sunrise share.

The RCPS, with a tenure of two years, will not be entitled to dividends and will not be listed.

The RCPS are convertible into UEM Land shares at RM2.30 per share anytime during their tenure and are redeemable at 100% of their issue price only at maturity.

Assuming that a shareholder holds 1,000 Sunrise shares and opts for option one, he would receive 1,333 UEM Land shares. If he were to opt for option two, he would receive 2,800 RCPS.

While some analysts said UEM Land’s offer was a positive proposition, other analysts were less optimistic.

An analyst said the merger may be a catalyst for further appreciation in UEM Land’s share price.

Another analyst said given that both companies had very different operating environments, it would take some efforts to merge their operations.

“I guess anything is possible at the moment. It makes business sense to merge as UEM Land develops townships while Sunrise builds high-end properties,” an analyst said, adding that they may have to resolve some cultural differences between the two.

ECM Libra head of research Bernard Ching said at first look, the takeover offer price of RM2.80 significantly fell short of its revised net asset value (RNAV) estimate of RM3.46 for Sunrise.

“But taking into account the net interim dividend of 20 sen, the total return to Sunrise shareholders is actually RM3, just 13% short of our RNAV,” he said.

On paper, shareholders who prefer to cash out could opt for the RCPS but would have to wait two years before redemption.

“However, we believe shareholders are better off selling Sunrise shares on or after the ex-date of interim dividend on Nov 18 if they wish to cash out. This is because of the opportunity cost over two years since the RCPS will not be listed,” Ching said.

Despite this, Ching believed the RCPS offered a “more attractive entry into UEM Land” as it was essentially a synthetic call option on UEM Land shares which would allow Sunrise shareholders to benefit from the upside of UEM Land shares but with limited downside risk.

Post-takeover, assuming 100% acceptances under the share swap option, Tong, Tan and Lim would end up with 6% in UEM Land and other Sunrise shareholders 9%. UEM Group Bhd will have a 65% stake in UEM Land and the balance 20% by other UEM Land shareholders.

On the other hand, if the RCPS option gets 100% acceptances, upon the RCPS’ full conversion, Tong, Tan and Lim would hold a 11% stake in UEM Land, other Sunrise shareholders 17%, UEM Group 56% and other UEM Land shareholders 16%.

The RM2.80 offer price represents a premium of 11% to Sunrise’s last trading price of RM2.52.

However, the offer price represents a premium of 30.4% to the 1-month volume weighted average price of Sunrise shares to Nov 2, after taking into consideration the interim dividend of 20 sen announced on Wednesday.

UEM Group Bhd group managing director/chief executive officer Datuk Izzaddin Idris said the offer, if successful, would result in the creation of an enlarged property developer with significant size, complementary expertise, capabilities and an asset base of about RM5bil.

On the rationale, UEM Land said the group’s vast land bank in Nusajaya was expected to be the engine for growth and sustainable income over the mid- to long-term.

However, as the Nusajaya projects were still under various stages of development, UEM Land’s current/historical profitability was not reflective of the value potential of such land holdings.

The proposed exercise is expected to provide immediate enhancement to UEM Land’s earnings as it would be able to consolidate the financial results of Sunrise and leverage on its strong existing pipeline developments.

“By leveraging on Sunrise’s robust financial strength and prospects, UEM Land is expected to be better positioned to accelerate its own business expansion and to secure new development projects,” UEM Land said in a statement.

Wan Abdullah said the group faced geographical risk as most of its landbank was in Johor and thus needed to diversify its landbank.

He said the acquisition would allow UEM Land to participate in Sunrise’s developments in the Klang Valley including Mont

Kiara/Dutamas, around the KL City Centre and its upcoming projects in Kajang and Shah Alam.

Meanwhile, Tong said he was excited at the prospects of Sunrise being part of the enlarged UEM group.

“Together, the new entity will have the size, means, capabilities and management experience and foresight to offer more comprehensive and diversified product range not just in Malaysia but regional as well,” he said.

Upon completion of the offer, Tong, who is executive chairman of Sunrise, will be appointed director at UEM Land. He will also chair both companies’ development committees together with Izzaddin and Wan Abdullah

Izzaddin and Wan Abdullah would be appointed to the Sunrise board with the latter assuming the position of managing director.

Asked if the merger was his way out, Tong said it was “hardly an indication” that he was getting out as he would remain on the Sunrise board as chairman.

“Realistically, for me to try to make Sunrise as huge and be a regional and global player the likes of CapitaLand may be impossible, or may take the rest of my life,” Tong said.

By The Star

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