First with Financial Comment from Arabia

Emaar rejects Dubai Holding real estate merger proposal

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The region’s largest property developer Emaar Properties announced that it is calling off a proposed merger with the real estate division of Dubai Holding, first unveiled back in June.

A statement said that after a ‘careful feasibility study conducted by a group of leading economists and international expert houses under the supervision of both sides’ the Emaar board had concluded the merger plan ‘proved economically unfeasible for the time being’.

Market response

Emaar shares were expected to bounce on the news, after several days of huge falls. But the announcement puts an end to uncertainty hanging over the future of the company, and the conclusion confirms what many shareholders believed to be the case: namely that the merger was not in their best interests.

Shareholders would almost certainly have voted it down anyhow. The real estate giant is 32.5 per cent owned by Dubai Government, enough to give its largest shareholder a big say in its affairs, but not outright control.

There has been no transparency nor disclosure of the assets and liabilities that would have been assumed by Emaar under the proposed merger, so it is impossible to try to second guess the merger committee and its conclusions.

But from the perspective of the Dubai real estate market it is fair to say that the current supply chain looks more than adequate going forward, and that the acquisition of a future land bank at this juncture – presumably for cash or shares – is not necessary.

Burj Dubai launch

Emaar clearly has to protect its own balance sheet in these difficult times for the Dubai economy, and the launch of the world’s tallest building the Burj Dubai next month shows that the company has still been building throughout the crisis since September 2008.

Should the market be viewing this as a positive sign that Emaar is taking an independent path and safeguarding its financial position, or will it wonder whether it is a sign that the company is not strong enough to take on the challenge of a merger?

It is always hard to read investor sentiment in a bear market but generally good and bad news makes little difference when stock markets are on the way down.


Written by Peter Cooper

December 10, 2009 at 8:26 am

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