| Kippreport.com

ALDAR-SOROUH MERGER: Sources claim initial agreement reached

January 9, 2013 7:29 by Reuters

ABU DHABI CONSOLIDATES

 

Mergers among companies in the Gulf are not common as shareholders, who are often powerful local families, tend to demand high valuations and are reluctant to cede control.

 

A planned merger between Dubai’s largest developer, Emaar Properties, and the property unit of conglomerate Dubai Holding at the peak of the emirate’s real estate crisis in 2009 was ultimately called off.

 

Abu Dhabi’s intention to merge Aldar and Sorouh was first announced last March, as the emirate conducted a review of its economy in the wake of the global financial crisis.

 

Real estate prices in the emirate have tumbled over 50 percent in the last few years following the 2008 global financial crisis and because of oversupply of new properties. This has forced some firms to cancel projects and restructure their debts.

 

Aldar – the larger company, which built the Yas Marina Formula One Circuit, home to the Abu Dhabi Grand Prix – said in November that it had written down 737 million dirhams of assets, mainly related to hotels.

 

It has received $10 billion in rescue funds from the Abu Dhabi government, equivalent to the amount which Abu Dhabi lent Dubai to rescue it from a debt crisis in 2009. In return, land on Al Raha beach, the Ferrari World Theme Park, and other key assets, were sold by Aldar to the government.

 

Smaller Sorouh, which has assets of 14.1 billion dirhams, has fared slightly better.

 

The companies established a steering committee for the merger, comprising banks, advisors and managements of both companies, in March last year.

 

Goldman Sachs and National Bank of Abu Dhabi advised the committee. Credit Suisse is advising Aldar while Morgan Stanley is working with Sorouh. Ernst & Young provided accounting advice to the steering committee while property consultants Jones Lang LaSalle helped with valuations.

 

A new management structure has been agreed upon with some senior executives and other officials expected to be laid off, one source said. (Editing by Andrew Torchia; Editing by Hans-Juergen Peters)

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