Touei, Arnest Lead Gains by Builders on Merger Plan: Tokyo Mover

Touei Housing Corp. (8875) and Arnest One Corp. (8895), Japanese condominium builders, surged in Tokyo trading after announcing plans to merge with four other developers to counter rising competition and declining demand.

Touei jumped 25 percent to 1,292 yen at the close of trading on the Tokyo Stock Exchange, the biggest gain since March 2009. Arnest One climbed 24 percent to 1,492 yen, its highest close since March 2007.

The two companies, along with Hajime Construction Co., ID Home Co., Iida Home Max (8880) and Tact Home Co. (8915), with a combined sales of 779 billion yen ($9.1 billion), will merge under a holding company by November 2013, they said in a joint statement through the stock exchange yesterday. The companies cited population decline and intensified competition in a shrinking residential market as part of the reasons for merger.

“If the merger is realized, it would strengthen their ability to negotiate pricing with suppliers and buyers and will allow them to achieve higher efficiency,” Daisuke Fukushima, a Tokyo-based analyst at Nomura Securities Co. wrote in a note to clients today.

The six developers generated a combined operating profit of 74.3 billion yen in their latest business year, according to the statement. The companies have an average 9.5 percent operating margin, less than the 15 percent operating margin for the Topix Real Estate Index (TPREAL), according to data compiled by Bloomberg based on the companies’ release.

The home builders also plan to expand their businesses that offer growth such as used and refurbished homes business and overseas markets, the companies said.

All the six companies will be delisted after establishing a new entity that will seek to be traded on the Tokyo Stock Exchange, according to the statement. The merger ratio hasn’t been decided, the companies said.

Hajime Construction advanced by its daily limit, surging 19 percent to 3,140 yen on the Jasdaq exchange. ID Home, Iida Home and Tact Home all jumped by their daily limit, gaining 24 percent, 17 percent and 17 percent, respectively.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net

To contact the editor responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net

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