What’s NEXT! MRCB/IJM Land

MRCB/IJM Land

What’s NEXT! … dated Jan 2011

According to sources, both companies are said to be taking another look at the merger plan, which if successful would create Malaysia ’s second largest property player.

Also, given that both companies have a substantial shareholder in the form of EPF, which holds 41.95% in MRCB and an effective 19.8% stake in IJM Land , there are still synergistic benefits to be reaped from any future property projects they embark on together.

Although both parties have kept mum on why the deal was aborted, market talk is that both MRCB and IJM were unable to settle on some of the terms laid out in the preliminary agreement.

However, IJM Land ’s MD Datuk Soam does not rule out the possibility of working with MRCB JV capacity rather than one that involves the merging of the two companies. Also he said that IJM Land does not rule out any future M&A possibilities.

MRCB however, declined to comment on the matter.

One of the future projects that both companies could eventually participate in is the EPF’s development of the massive RRIM land in Sungai Buloh. Spanning 3300 acres, it is expected to be a huge project for the EPF, hence any plans that the fund has for it will be watched closely.

Already, MRCB is said to be assisting the EPF in drawing in the master plan for the area together with other parties. Industry players say it is likely that the EPF will offer some portions of the RRIM land for open tender while some could be parceled out via direct negotiations.

It is such a key project that the EPF would want only property developers with experience in building larger townships to assist, but all within its master plan. But given the sheer size of the project, it is unlikely that it will take off in the very near future. It could be at least around two years before things start to move on the ground for the RRIM land. After the master plan has been decided, it still takes time to gain approval from the authorities before any building can start.

MRCB’s prospects for future growth are strongly linked to the EPF’s plans for the RRIM land as well as its KL Sentral development.

The crystallization of the prime KL Sentral land is also progressing well. Currently, MRCB and its partners are developing about RM4 billion worth of office and retail buildings. The group is also looking at expanding its development, eyeing 20 acres of land nearby, although this is not expected to happen in the immediate future.

What’s Up? … dated Jan 2011

The falling through of the proposed merger between MRCB and IJM Land Bhd could be a blessing in disguise for the former.

For the shareholders of MRCB, a merger at a later date could mean a better deal. This is presuming MRCB’s valuation could be further enhanced once its role in the Rubber Research Institute of Malaysia (RRIM) land is firmed up. The aborted plans may work out to be a blessing in disguise in favour of MRCB.

MRCB is widely regarded as the front runner in securing the lead developer role, if not a major participation, in the development of the 3,300-acre RRIM land in Sungai Buloh. This is by virtue of the fact that the Employees Provident Fund (EPF) — which has been granted the mandate to develop the RRIM land — is MRCB’s controlling shareholder with a 41.63% equity interest.

For the EPF to maximise its returns from the RRIM land, MRCB in which the retirement fund holds a significant interest has to play a major role.

If the merger talks were to be reignited after it is being firmed up that MRCB would have a major role in the RRIM land, the latter’s shareholders — which include the EPF — would benefit from a higher swap ratio against IJM Land shares.

The “RRIM land factor” was not “well reflected” in the indicative price of RM2.30 per MRCB share in the merger with IJM Land . IJM Land was valued at RM3.65 per share in the aborted exercise.

Industry observers believe that a contributing factor was the pricing for MRCB’s concession assets. (They) were to be rationalised and absorbed by IJM Corp Bhd ( IJM Land ’s parent) and would make up the potential cash payout on top of the swap price of RM2.30 for MRCB. The reference price for IJM Land was set at RM3.65.

The termination of the merger deal is less negative for MRCB given its lower valuation for the swap price.

Finally with MRCB and IJM Land both having the EPF as a common major shareholder, it is inevitable that both will enter into future partnerships or contemplating another merger again. Whether the next merger would be more favourable to MRCB or IJM Land would naturally depend on where EPF has the higher stake.