It has been an exciting November so far for the share markets - with plenty of corporate exercises and play - and most interesting ones - the big mergers. =)
Early this month, property giant UEM Land Holdings Bhd proposed a conditional takeover of Sunrise Bhd at RM2.80 per share, which values the entire acquisition at RM1.39 billion. If and when completed, it will create Malaysia’s largest property company with a market capitalization of nearly RM10 billion and a 12,000-acre landbank.
In my honest opinion, this is a win-win situation for both UEM Land as well as Sunrise Bhd. According to its reports, Sunrise has only about 600 acres of undeveloped landbank left, of which only 165 acres are development land (the rest being plantation land). UEM Land on the other hand, has about 11,400 acres of land - majority being in the Iskandar Region (IDR). Their big bet would be on their landbank in the Iskandar region, which I think is quite a safe bet for the long term.
While Sunrise can leverage on UEM Land's extra landbank as well as its strong Government backing in Khazanah, UEM Land can meanwhile utilize and leverage on Sunrise's profile and portfolio as a quality and high-end developer, with record selling property prices as well as its trustworthy reputation based on its build-and-sell strategies. Also do bear in mind that Sunrise has been in the Top 10 Property Developers for the past 8 years - and it has won various other awards over the years and has established itself as an award-winning developer.
On top of that, I would expect to see some interesting and new concepts in the Iskandar Region - perhaps with Sunrise lending its expertise in the condominium sectors to UEM Land - and we shall see plenty of cool and luxury condominiums in the south.
On the merged entity, the UEM LAND - SUNRISE merger will create the country's largest property developer by market capitalization with a market cap of just under RM 10 billion. This increased size - is able to attract plenty of investor and fund manager interests. An enlarged entity is able to create and drive a lot more share liquidity. Khazanah currently holds a 77% share in UEM Land, and this will be reduced substantially to between 56-65% after the merger. With a larger free float, it allows for more share liquidity. A high free float sometimes hold the key to trading and share liquidity, as it can attract a lot of institutional interests.
On top of that, previously there was only a handful, if not possible only one property player that had a more than one times price-to-book ratio - and that is the previous largest developer, S P Setia Bhd. With an enlarged market cap of about RM 10 billion, it will be hard for the investors and fund managers to ignore the new UEM Land - Sunrise entity. I think this makes the Property Sector for 2011 to be very exciting and interesting.
I shall come up with Parts 2 and 3 very soon.
Coming up... the MRCB-IJM Land and also the Sunway-Suncity mergers.