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Abu Dhabi property merger is a mixed bag

Minority stakeholders get a mixed bag from Aldar sorouh merger

Still, the merger could have been much worse for minority shareholders that account for less than half of Sorouh's register, and the 13 percent of foreign owners.


January 21, 2013 4:39 by

By Una Galani

Abu Dhabi’s property merger is a mixed bag for minority shareholders. Factoring in a surprise cash sweetener from the government, it looks like well-run independent Sorouh is paying a premium to seal an all-share deal with troubled state-controlled rival Aldar . But the $2.9 billion state-sanctioned merger of Abu Dhabi’s leading publicly-listed developers will help smooth the emirate’s property mess.

The politics make valuing the deal tricky. Aldar and Sorouh were trading at a 63/37 split in favour of Aldar, based on yesterday’s closing price. The terms of the deal give Sorouh shareholders 1.288 new shares for each share in Aldar. That would have equated to a 28 percent premium for Sorouh.

That premium, however, quickly dissolves into a discount after taking into account the unexpected $436 million cash-gift presented as “reimbursement” from the government to Sorouh for infrastructure assets. The sweetener lifts Sorouh’s pre-merger market price to give a 55/45 split in favor of Aldar. With the proposed exchange ratio, though, post-merger Sorouh will only own 43 percent of the enlarged group.

Even though the cash payment is an integral part of the deal, these terms might seem tough for Sorouh, which is helping to reduce Aldar’s huge debt burden. Aldar’s net debt will fall from 180 percent of equity to 69 percent within the enlarged firm.

Still, the merger could have been much worse for minority shareholders that account for less than half of Sorouh’s register, and the 13 percent of foreign owners. Sorouh relies on the government for a large chunk of its business in an emirate where residential rents have fallen 50 percent since 2008. The smaller firm will also chair and control the board.

Abu Dhabi plans to spend $90 billion on new infrastructure over the next five years. With the emirate still owning 37 percent of the firm, Aldar Sorouh will be well-positioned to win new business. The government will find it easier to control the market through a single firm and, with a little luck, the new group won’t repeat the same mistakes that got Aldar into trouble in the first place.


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