Abu Dhabi’s Aldar to Buy Sorouh in $1.5 Billion Deal

Aldar Properties PJSC agreed to buy Sorouh Real Estate PJSC in a 5.5 billion-dirham ($1.5 billion) deal that would create the Middle East’s third-biggest publicly traded property company by assets.

Aldar will offer 1.288 of its shares for each Sorouh share, the companies said today in a statement. That values Sorouh’s shares at 2.10 dirhams, based on the Jan. 17 closing price. Sorouh Managing Director Abubaker Seddiq Al Khouri will serve as chairman of the combined Aldar Sorouh Properties PJSC.

Abu Dhabi’s government, which backed the deal, has taken an increasingly direct role in supporting builders and development projects after the credit crisis kicked off a real estate slump that caused values to drop by more than 50 percent. The oil-rich state spent $9.8 billion to bail out Aldar in 2011 and last year it backed the revival of halted projects including branches of the Louvre and Guggenheim museums.

Reducing Aldar Sorouh’s 13.4 billion-dirham debt pile will be the new company’s “overarching priority,” Al Khouri told reporters today.

Cash flows of about 15 billion dirhams, mostly from government contracts, will be used “to substantially reduce the debt over the next three years,” he said. Al Khouri described the transaction as a merger of equals.

Price Premium

The purchase price of Sorouh shares is 72 percent higher than the closing price of 1.22 dirhams on March 11, when the companies said they planned to discuss a possible merger, Bloomberg data shows. Abu Dhabi’s government and related entities will own about 37 percent of the new company, which will have more than 47 billion dirhams in assets, according to the statement.

Aldar Chairman Ali Eid AlMheiri has been proposed as the company’s vice chairman. The deal will take effect in June, subject to shareholder approval, and a management team will be appointed prior to the extraordinary general meetings of Aldar and Sorouh, according to the statement.

Aldar’s shares have surged 20 percent since the companies said they planned to study a possible merger on March 11, while Sorouh’s have rallied 39 percent. Aldar fell 9.8 percent to 1.47 dirhams at the close in Abu Dhabi today, while Sorouh gained 4.3 percent to 1.7 dirhams, the highest close since Dec. 2010.

Buying Assets

Abu Dhabi’s government agreed to purchase infrastructure assets and homes from Sorouh for a combined 3.2 billion dirhams, according to the statement. The government will pay 1.6 billion dirhams for housing units in the Gate project which is set for completion in the second-quarter, Al Khouri told reporters today. A similar amount will be paid by the government for work on roads, bridges and other infrastructure, he said.

“The valuation has exceeded expectations and the business will benefit as part of a bigger entity, ensuring Sorouh has full-government backing,” said Mohammed Ali Yasin, managing director of Abu Dhabi Financial Services Co., the brokerage unit of National Bank of Abu Dhabi PJSC. “It will probably be rewarded handsomely in government contracts.”

Qatar’s Barwa Real Estate Co. and Emaar Properties PJSC of Dubai are the region’s biggest publicly traded developers by assets, data compiled by Bloomberg shows.

Credit Suisse Group AG advised Aldar and Allen & Overy LLP represented the developer. Sorouh was advised by Morgan Stanley and represented by Clifford Chance LLP. Goldman Sachs Group Inc. and National Bank of Abu Dhabi PJSC advised the steering committee on the deal. Ernst & Young did accounting for the committee and Jones Lang LaSalle Inc. performed valuation work.

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