SM group creates property behemoth

Rappler.com
The Sy-led SM Group consolidates its mall and property units and dislodges Ayala Land as the biggest property group in the Philippines

MANILA, Philippines (UPDATED) – The mall and property units of the the SM Group are merging to create a corporate behemoth and dislodge Ayala Land Inc as the country’s biggest property group.

On Friday, May 31, officials of Henry Sy Sr-led holding firm SM Investments Corp (SMIC) announced the merger of the following: 

 SM units Business activity    MARKET CAPITALIZATION   
as of May 30, 2013 
 SM Prime Holdings Inc       Flagship shopping mall unit     P338.7 billion
 SM Development Corp   Residential property unit P73.2 billion
 Highlands Prime Inc.   Leisure developer within Tagaytay Highlands    P5.8 billion
 SM Land Inc Land developer (not listed)

 

The consolidation will bring the market capitalization of SM Prime, the surviving entity, to around P417.8 billion based on May 30 closing prices. The merger also folds in privately-held SM Land, which can further jack up the market capitalization of the newly merged SM units.

The combined current market capitalization of these firms is estimated at  P591 billion, SMIC officials said. In effect, the move allows SM Prime to dislodge Ayala Land as the biggest listed property firm.

The market values Ayala Land at P461.4 billion.

“The merged company will be among the largest integrated property developers in the region with offerings spanning across diverse sectors of mall, office, residential, hotel and leisure development,” SMIC said in its disclosure to the Philippine Stock Exchange on Friday, May 31.

In terms of total assets, the consolidated units under SM Prime will have P284.1 billion, according to SM offiicals at a press conference on Friday, May 31.

Ayala Land’s total assets as of March stood at P288.3 billion.

Another SM unit, Belle Corp., which is building a Manila casino resort complex with Melco Crown Entertainment Ltd., is not included in the consolidation. (Read: Why Belle is not part of the SM group’s mega merger)

Scale and synergy

The SM group has long been mulling the merger of its property units. It has previously mandated Morgan Chase & Co, Macquarie Group Ltd and BDO Unibank Inc to study the consolidation.

SM officials have cited having scale and synergies as reasons to pursue a merger. 

The merged firm creates a full-range property development arm that would combine residential, hotel, office and shopping mall businesses into one vehicle. 

“The consolidation is intended to create an integrated real estate company, which will allow the merged entity to undertake larger scale projects with the participation of all of its business units.” SMIC said. 

“Its expanded scope, under a simpler and more transparent corporate structure, is expected by SMIC and SM Prime to create efficiencies and further crystalize the value of the SMIC’s real estate businesses,” it added.

It will also create a corporate vehicle that would make the group more attractive to big investor groups

Analysts have long said a consolidation makes financial sense since it could reflect the group’s true value — one that is not captured or maximized when they are stand-alone businesses.

It’s a strategy that works well for Ayala Land and Gokongwei-led Robinsons Land. Both groups lump their mall, residential, office and hotel development businesses together, allowing them to benefit from economies of scale and a stronger asset base.

SMIC has a diversified portfolio that includes the biggest retail and mall chain in the country, the largest bank in terms of assets, and one of the most aggressive real estate property developers, and gaming.

Aside from its core businesses, the SM group also has interests in mining, infrastructure, gaming, and geothermal energy.

Forbes magazine estimates that its patriarch, Henry Sy Sr., is the country’s richest man.

SMIC is the country’s most valuable firm. It dislodged Manuel V. Pangilinan-led telco giant Philippine Long Distance Telephone Co. (PLDT) this year. 

Re-organization

On Fiday morning, the 4 individually listed SM units voluntarily halted trading of their shares ahead of the “major” announcement. Trading resumes on Monday, June 3.

The boards of Highlands and SMDC have approved the firms’ voluntary delisting.

To implement the transaction, SMDC and Highlands will exchange shares with SM Land Inc. From June 4 to July 9, 0.472 SM Prime shares will be exchanged for every SMDC share. SM Prime and SM Land will then merge.

The approval of at least 2/3 of stockholders and the SEC will be sought to effect a re-organization. The plan involves SM Prime, the surviving entity, acquiring the real estate companies and assets of parent firm SMIC in exchange for new shares in SM Prime.

Henry Sy Jr., who headed SM Development Corp, will be chairman of the merged entity, while brother Hans, who was president of SM Prime, will continue to hold the same position. Jeffrey Lim will continue as chief finance officer.

Patriarch Henry Sy Sr. stays on as chair emeritus. Previously, Sy Sr. has reduced his personal stake in SMIC to 1.39%– with reports from Lala Rimando and Ramon Calzado/Rappler.com

 

 

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