Sunway's proposed merger

LAST week, Sunway Group chairman Tan Sri Jeffrey Cheah and his daughter Sarena Cheah, made an offer to take over the assets and liabilities of Sunway Holdings Bhd and Sunway City Bhd (SunCity) via a deal involving cash and shares swap totalling RM4.5 billion.

The privatisation exercise will be carried out through Cheah's investment vehicle, Sunway Sdn Bhd (SSB). The duo will then distribute the sales proceeds, including cash, shares and warrants to be issued by the merged entity to the respective shareholders through a capital reduction and repayment exercise.

Sunway Holdings and SunCity will be delisted from Bursa Malaysia, while the merged SSB, or the merged entity, will assume a new listing by the middle of next year after the takeover exercise.

Under the deal, SSB proposed to take over SunCity at RM5.10 per share and Sunway Holdings for RM2.60 per share, representing a 20% premium to the two companies' five-day volume weighted average price.

Prior to the announcement of the deal, shares of Sunway Holdings were last traded at RM2.25, and SunCity at RM4.49. After the post-announcement rally, the two stocks saw some profit taking last Friday, closing at RM2.29 and RM4.50, respectively.

SSB said the offer prices would be satisfied via the issuance of SSB shares at RM2.80 per share that would represent 80% of the offer price, while the remaining 20% would be paid in cash. Additionally, SSB will also issue new warrants for all Sunway Holdings and SunCity shareholders on the basis of one SSB warrant for every five shares.

Under the assets and liabilities takeover route, Sunway Holdings will require 50% plus one vote to see the deal go through.

Upon completion of the merger, Cheah will own a 44% stake in the enlarged entity. SunCity's second-largest shareholder, the Government of Singapore Investment Corp (GSIC), which currently holds a 21.28% stake in SunCity, will effectively own about 12% stake in the enlarged entity.

Cheah said the eventual group could have a potential market capitalisation of over RM3.5 billion.

This article appears in the Nov 29 edition of The Edge Financial Daily.