In early November, UEM Land Holdings Bhd started the property merger ball rolling by proposing a conditional takeover of Sunrise Bhd at RM2.80 per share, which values the acquisition at RM1.39 billion. It will create Malaysia’s largest property company with a market capitalisation of nearly RM10 billion and a 12,000-acre landbank.

Sunrise’s shareholders will have two options on the table, to either take up UEM Land’s shares or its unlisted redeemable convertible preference shares (RCPS). For those who opt for the share swap, they will exchange one Sunrise share for 1.33 UEM Land shares with UEM Land’s shares
being issued at RM2.10 per share.

For those who plan to take up the RCPS option, the exchange will be 2.8 UEM Land RCPS at RM1 each for one Sunrise share with the option to convert the RCPS into ordinary shares any time until maturity at a conversion price of RM2.30 per share. Or, they may choose to redeem the amount in full after two years.

The RCPS has a warrant-like gearing feature as they can be converted into one ordinary UEM Land share via two options — by tendering 2.3 RCPS or 1 RCPS and RM1.30 in cash.

After the merger, if all Sunrise shareholders choose the share alternative, UEM Group will pare down its stake in UEM Land to 65% from 77% while Sunrise’s major shareholders Datuk Tong Kooi Ong, Tan Sri Danny Tan Chee Sing and Datuk Allan Lim will collectively own a 6% stake in the enlarged UEM Land.

If shareholders decide to take the RCPS route instead with full conversion, UEM Group will end up with a 56% stake in UEM Land, and Sunrise’s major shareholders will hold an 11% stake in the enlarged group.

UEM Land has already received an irrevocable acceptance from Sunrise’s three major shareholders who collectively own 40.3% of Sunrise presently. After getting more than 75% acceptance from Sunrise’s shareholders, its listing will be withdrawn.

This article appeared in The Edge Financial Daily, November 29, 2010.