Why UEM Land acquires Sunrise?

About the offer…

On 4^th November 2010, UEM Land Bhd plans to take control of Sunrise Bhd in a RM1.4bil deal. Shareholders of Sunrise are given 2 options:

1. UEM Land to acquire Sunrise shares at RM2.80 via the issuance of UEM Land shares at RM2.10 each, or
2. Sunrise shareholders get 2.80 redeemable convertible preference shares (RCPS) for every one offer share.

 

Why Sunrise?

Reasons given by UEM Land were:

• Leveraging on Sunrise Group's robust financial strengths and prospects
• Accelerate UEM Land's own business expansion
• To secure new development projects
• And, to create another Capital Land (Singapore state-own company which is one of Asia's biggest property developers)

After the deal is completed…

• UEM Group's shareholding in UEM Land will fall to around 60%
• Major shareholder of Sunrise will have stake of around 9% in UEM Land
• Sunrise will be delisted from Bursa Malaysia
• But, the brand name of Sunrise will be retained
• Creating an enlarged group with combined asset base of over RM5bn

Finance Malaysia thinks that the acquisition would compliment UEM Land's lack of expertise in high-rise, high-end property development. What UEM Land's business was in macro township development, such as the Nusajaya project. Mont Kiara, being the award winning development by Sunrise, is a clear example. UEM Land knows that Nusajaya would NOT be perfect without a brand and expertise such as Sunrise's.



Anyway, FM doubts whether the offer will go through smoothly with a mere 11% premium being offered to Sunrise's shareholders. Moreover, Sunrise was planning to launch 4 projects with total gross development value of RM3.2bn soon.

Why MMC want to take over UEM Group?

When the RM15.6 billions take-over news broke out, MMC share price has been rallying to multi-months high. It was reported that MMC is pairing with EPF and PNB with MMC holding a 40% stake of the consortium. On the other hand, Khazanah Nasional Bhd is the ultimate holding company of UEM Group Bhd.

The Pull factors…

1. PLUS Expressways, is one of the key assets that spark MMC interests? The national’s largest cash-generating toll-operator undeniably is Khazanah’s golden asset with 55.2% direct and indirect interest.
2. UEM Land, which has a huge land bank in southern corridor – Iskandar Development Region. This is favorable to Johor based MMC’s investments.
3. To boost its construction arm with stronger muscle? UEM Group is having several projects in Malaysia, such as the Penang Second Bridge. MMC can leverage on the latter expertise and also to gain market share, given the lack of domestic awards.

What makes me interesting is the alternative MRT proposed by IJM-UEM recently. By acquiring UEM, MMC could break-up the joint venture and effectively eliminate the said rival proposal which reportedly costing much lower than the Gamuda-MMC RM35bil proposal. There are two possibilities:

1. Take-over succeeds.
2. Failed. But, MMC guaranteed succeeds in MRT project, because government is running out of time to consider an alternative proposed by IJM-UEM joint venture, which is remain uncertain.

Either way, MMC will gain more than harm. Or, is this the strategy employed by MMC?