Sorouh hits new high on Aldar merger deal
Dubai, January 21, 2013
Abu Dhabi's Sorouh Real Estate jumped to a 25-month high on Monday after the company reached a long-awaited merger agreement with Aldar Properties , but most regional markets fell.
Trading volumes for both Sorouh and Aldar, Abu Dhabi's two biggest property developers, hit record highs. Both stocks had more than doubled in price over the past year in anticipation of the merger, and while the terms of the deal looked positive for Sorouh shareholders, they prompted heavy profit-taking in Aldar.
Sorouh jumped 4.3 per cent to close at 1.70 dirhams, its highest level since December 2010; they hit a high of 1.87 dirhams in early trade. Aldar plunged 9.8 percent.
Sorouh shareholders will receive 1.288 Aldar shares for every share in Sorouh, which will be delisted once the merger, which is subject to shareholder approval, is completed, the companies said on Monday.
"The official announcement highlights a ratio that on paper is favourable to Sorouh shareholders, and the valuation is obviously a reflection of the quality of the respective underlying assets," said Akber Naqvi, hedge fund portfolio manager at Al Masah Capital.
Ali Adou, portfolio manager at The National Investor, said: "Sorouh's shareholders are being given an incentive to hold more shares in the new company, while Aldar shareholders will be diluted."
NBK Capital observed in a research note that based on Sunday's close, the merger plan valued Sorouh at 2.10 dirhams per share.
"On the face of it, this is actually quite a good deal for the Sorouh minority shareholder, since our fair value for Sorouh as a standalone company amounts to 2.33 dirhams per share," it said, adding: "Given the uncertainties surrounding the still-declining Abu Dhabi real estate market, a discount of just 10 percent to our fair value does not seem unreasonable."
Including the impact of Abu Dhabi's financial support for Sorouh in the merger, the company's fair value is even higher, at 3.24 per share, NBK added.
Abu Dhabi's benchmark slipped 0.1 percent, easing from Sunday's 26-month high.-Reuters