Sunway Holdings, SunCity in RM4.5bil merger deal

The Sunway Group chairman Tan Sri Jeffrey Cheah(left) and Sunway Holdings Bhd managing director Yau Kok Seng (right) at a briefing on Wednesday to announce the merger. Starpic by Chan Tak Kong

PETALING JAYA: Sunway Holdings Bhd and Sunway City Bhd (SunCity) have received a takeover offer from Sunway Sdn Bhd (Newco), a company controlled by Tan Sri Jeffrey Cheah (pic), for RM4.5bil in cash and share swap.

The exercise entails Newco offering RM2.60 per Sunway share, RM1.50 per Sunway warrant and RM5.10 per SunCity share and RM1.29 per SunCity warrant.

The offer prices are to be satisfied via the issuance of an equivalent value of Newco shares representing 80% of the offer prices and the remainder 20% in cash. The offer would include Newco issuing new warrants for free to all shareholders of SunCity and Sunway on the basis of one Newco warrant for every five Newco shares.

Based on SunCity and Sunway Holdings' last traded prices of RM4.49 and RM2.25 respectively, the offer price represented a premium of 13.6% and 15.5% respectively.

This transaction will see three key advantages, namely size, synergies and branding, Cheah, who is also the chairman of the Sunway group, said in a briefing to announce the corporate exercise.

The immediate and obvious advantage of this merger is a bigger and better capitalised entity. Once the offer is accepted and approved, the merged company will have a potential market capitalisation of over RM3.5bil, he said, adding that based on analysts consensus, the merged entity would have combined total revenue of more than RM3.3bil.

As at June this year, total assets for both companies stood at more than RM8bil.

To a question, Cheah said the merger was due to right market conditions. He said the timing was good and the share prices of both companies had come to an equitable level. It's a good time to do it (merging).

Asked if the move was to prevent a takeover by others, Cheah said the group was not fearful of being taken over.

Size brings us opportunities. We will have access to a larger market and the ability to bid for projects with higher value, particularly in international markets, he said.

Following the corporate exercise, both Sunway Holdings and SunCity will be delisted. Subsequently, Newco will seek a new listing on Bursa Malaysia subject to obtaining the required approvals.

Newco, owned by Cheah and his daughter Sarena Cheah, will consolidate all business operations of both companies under one listed entity, Sunway Bhd. The exercise is expected to be completed by mid-2011.

Following the acquisition, Sunway Holdings and SunCity will proceed to distribute Newco shares, cash and Newco warrants to its respective shareholders through a capital reduction and capital repayment exercise.

Cheah and Sarena currently own direct and indirect stakes of about 43.68% in SunCity and 46.53% in Sunway Holdings. Their stake is around 44% in the merged entity.

Sunway Holdings reported a net profit of RM48.5mil, or 8.4 sen per share, in the third quarter ended Sept 30 on the back of RM489mil in revenue, driven by the construction, property development and trading and manufacturing divisions.

Sunway Holdings said its quarterly results included a RM4.9mil gain arising from the adoption of FRS 139. For the nine months ended Sept 30, Sunway Holdings posted a net profit of RM136.99mil on revenue of RM1.49bil.

Cheah said the group had been growing quite nicely. However, he said the rate of growth might not be huge due to the larger base.

In the notes accompanying its financial results, Sunway said the construction division was expected to record impressive profits backed by a healthy outstanding order book of RM2.3bil of which about 60% are overseas construction contracts.

The group also expects sustainable activity in the local construction scene in the next few years with the pick-up in private development activities as well as from the recent announcement of the Budget 2011 and Economic Transformation Programme.

The property development division has unbilled sales of RM400mil from existing property projects, both locally and overseas. This division will continue to contribute positively to the group's earnings in the current and coming year with income from upcoming property launches, it said.

By The Star