Emaar, Dubai Properties, Sama Dubai and Tatweer to merge
Dubai Holding and Emaar Properties said on Friday they are in advanced talks to merge four local real-estate companies.
A joint statement said the move would consolidate Emaar, which is building Burj Dubai, with three developers owned by Dubai’s ruler — Dubai Properties, Sama Dubai, and leisure developer Tatweer — that are all prominent players in a sector badly hit by the global financial crisis.
Emaar’s shares closed at 3.21 dirhams ($0.87) on Thursday, well off their 28.75 dirham high, reached in September 2005. Reuters data showed Emaar’s enterprise value was 23.9 billion dirhams, and that it had net debt of 3.8 billion dirhams.
Property prices in Dubai have slumped since last year when the global economic crisis and a drop in oil prices ended an economic boom in the Gulf region.
“Emaar and Dubai Holding … with the assistance of their financial advisers, the Royal Bank of Scotland PLC and Merrill Lynch International respectively, are in the process of finalizing a thorough assessment of the merits of this proposed consolidation,” the statement said.
The assessment covers areas including “the valuation of the various entities as well as … the potential transaction structures,” it said.
“Consolidating these three companies with Emaar is a natural progression in the evolution of the Dubai real estate landscape, providing benefits to all stakeholders,” Mohammed al-Gergawi, chairman of Dubai Holding, said in the statement.
Emaar Chief Financial Officer Amit Jain and Emaar Dubai Holding’s Chief Executive, Issam Galadari, declined to comment when contacted by Reuters.
Executives at Dubai Properties, and Sama Dubai could not immediately be reached for comment. Saaed al Muntafiq, executive chairman of Tatweer, declined to comment.
“Given the sharp drop in project pipeline it is a good idea to right size Dubai Holding businesses exposed to various projects,” said Saud Masud, real estate and construction analyst for the Middle East and North Africa at UBS.
“The merger is the right thing to do. It is a much needed catalyst and could lead to bigger M&A activity.”
Earlier this week, Peter Riddoch, chief executive of Damac Properties, the emirate’s largest private developer, told the Reuters Global Real Estate Summit in London he believed prospects for consolidation in Dubai remained high as the government looked to support its property firms.
Tatweer said earlier this month the bankruptcy of its partner Six Flags SIXF.OB, one of the largest theme park operators, would not delay a multi-billion dirham park project in Dubai.Tatweer is building at lease seven theme parks.
Dubai Holding said in February it would merge back-office operations at Dubai Properties, Sama Dubai and Mizin to cut costs.
Update 1: Dubai talks on Emaar merger
http://www.ft.com/cms/s/0/3c6561f4-6270-11de-b1c9-00144feabdc0.html?nclick_check=1
The company, which is listed on the Dubai Financial Market, has built up cash reserves that are helping it through the downturn.
Some analysts are therefore reluctant to see it merge with Dubai Properties, Sama Dubai and Tatweer.
Emaar and Dubai Holding abandoned a land-for-shares swap in 2007 because the deal upset shareholders.
Many institutional and international investors sold their shares at the time.
The decision to merge the real estate entities signals an apparent willingness for the ruler to break down the business empires of his lieutenants.
During the boom years they competed with one another, helping develop the city rapidly but building up the emirate’s $80bn debt.
Officials have been seeking ways to consolidate some of the emirate’s disparate government-related assets, but have complained that personalities have sometimes slowed down the process.
Emaar, in which the government has a 32 per cent stake, is run by its chairman, Mohammed Alabbar, while Dubai Holding is overseen by Mr Gergawi, with day-to-day management of the group undertaken by Ahmad bin Byat, its chief executive.
Keeping in mind the resignations of Nasser Al Sheikh from a number of leading positions last week, one could wonder what was his view about this merger plan.
Actually, the official news agency WAM said that :
In my opinion, if the four companies are going to combine assets (land banks & cash reserves), the shares should be re-valuated or diluted. Action of such capacity will take time, long time (Amlak/Tamweel).
It is very possible Emaar shares to have had their run already last week.
The comments in FT.com suggest that certain personalities have been in the the way of high profile companies consolidations in Dubai, which may be linked to the resignations of the last week and the Govn immediate actions.
If this is so, the news was already discounted and the announcement didn’t come out by mistake on Friday when the markets are closed.
Centralization, nationalization or whatever it is called, will save lots of administrative expenses and prompt new massive layoffs as well. Also, it indicates the state of the real estate sector and the direction of the property prices and the rents, at least until the end of 2009.
Update 2: Emaar, Dubai Holdings announce consolidation talks
http://www.gulfnews.com/business/Real_Estate_Property/10326282.html
Update 3: Dubai property mega-merger starts sector consolidation
http://seekingalpha.com/instablog/179000-peter-cooper/10220-dubai-property-mega-merger-starts-sector-consolidation
The devil will be in the detail, and a four-way merger is bound to be complex. Yet this process is both inevitable and healthy after the collapse of the Dubai property boom last autumn.
….
The main problem in concluding this four-way merger will be agreeing asset valuations. It is one thing to trumpet headline project values, quite another to determine the value of a half-completed project whose cash requirements make it an immediate liability and not an asset at all.
But this is where the common ownership thread is vital, and Emaar is actually 32.5 per cent owned by the Dubai Government as well. The interests of other shareholders also have to be taken into account of course – in the absence of a majority stake – but this is an enormous advantage in driving a complex consolidation to a successful conclusion, creating what will be one of the largest property companies in the world.
Who runs the merged company?
There is also the issue of who controls what after the consolidation and the form of the company. Moreover, for Emaar as the listed entity that means determining the extent of dilution to its existing shareholders or facing the creation of an entirely new listed entity.
But Emaar shareholders are unlikely to assume control of such a huge portfolio of Dubai real estate at no cost to their equity holdings. On the other hand, the potential upside in any recovery will be proportionately greater and the risk-reward ratio could be attractive.
However, foreign observers will welcome the news that Dubai is grasping this thorny problem now and not allowing the situation to fester further. It could also be that consolidation emerges in other sectors of the local economy: there are four Dubai islamic banks for example that might be more profitable if combined into a single regional champion.