Hulic Co. and Shoei Co. said they reached an agreement to merge the two Japanese real estate developers in a transaction estimated at 268.7 billion yen ($3.4 billion). Shoei shares surged the most in more than 2 1/2 years.
Shoei will swap three of its shares for each Hulic share, according to the companies. Shoei said it plans to transfer 493.9 million shares, which is worth about 268.7 billion yen, based on its closing price yesterday. Shareholders will decide on the deal at the end of March, the Tokyo-based companies said in a statement, with the aim of delisting Hulic on June 27.
The transaction underscores the struggle of smaller Japanese property companies as funding dries up. Debt at about a third of the 150 publicly traded developers and real estate companies in Japan is more than twice their equity, according to data compiled by Bloomberg. Shoei, which is expected to post a loss this year, faced difficulty getting loans, Hulic said.
“This merger is positive for both shareholders,” said Masahiro Mochizuki, an analyst at Credit Suisse Group AG. “Shoei had to find support because the company couldn’t borrow money from banks. Hulic saved Shoei’s shareholders.”
Shoei’s shares jumped 12 percent to 608 yen at the close today, the most since March 27, 2009, while Hulic climbed 1.8 percent to 843 yen.
Shoei reported a loss of 1.9 billion yen for the nine months ended Sept. 30, the company said on Nov. 4.