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Saturday, June 1, 2013

The SM Group Merger

Last May 31, the board of directors of SM Investment Corp (SMIC) SM Prime Holdins, Inc. (SM Prime) announced the merger of its property holdings.

SM Development Corp and Highlands Prime Inc. will be acquired by SM Prime via share swap. SM Land and SM Prime will then be merged, with SM Prime as the surviving entity.

According to reports, the consolidation will bring the market capitalization of SM Prime, the surviving entity, to around P591 billion. The move allows SM Prime to surpass Ayala Land as the biggest listed property firm.

Effect on Stocks

Based on May 30 closing prices, one SMDC share is valued at .405 SMPH share. Given that the offer price is at .472, there is a potential upside of .067 or 16.5%.

One HP share is valued at .135 of SMPH share based on last trading price. At an offer price of .135, the potential upside is .0022 or 2%.

What will Happen?

Given the bearish condition of the stocks market, we still believe that the merger news is too big to ignore. SMDC offers the best upside among the three listed companies and it will likely rise come opening bell. Even if it goes back at 8.50 and assuming SMPH are unchanged at 19.50, it will still give an upside of 8.28%.    

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