SM approves consolidation of property units under SM Prime

MANILA, Philippines—Tycoon Henry Sy-led SM Investments Corp. has obtained board approval to consolidate all property units into a single publicly listed entity under SM Prime Holdings Inc., potentially creating the country’s largest property company.

In a disclosure to the Philippine Stock Exchange on Friday, SMIC said the proposed consolidation would involve three steps:

1. Privately-held SM Land Inc. will offer existing shares of SM Prime in exchange for the outstanding shares of residential property units SM Development Corp. and Highlands Prime Inc.

2. SM Land will be merged with SM Prime, with the latter as the surviving entity

3. SM Prime to acquire specific real estate companies and assets currently held by SM Investments in exchange for new shares in SM Prime.

The reorganization is subject to SM Prime’s stockholder approval where a vote of the stockholders owning at least two thirds of the outstanding capital stock of SM Prime is required and the Securities and Exchange Commission’s approval of the increase in authorized capital stock for the issuance of new shares. SM Prime plans to double its authorized capital stock to P40 billion in line with this transaction.

The consolidation is intended to create an integrated real estate company, which will allow the merged entity to undertake larger scale projects with the participation of all of its business units.

Its expanded scope, under a “simpler and more transparent” corporate structure, is expected by SMIC and SM Prime to create efficiencies and further crystalize the value of the SMIC’s real estate businesses, SM Investments said in a press statement.

The enlarged SM Prime will be chaired by Henry Sy “Big Boy” Jr., with patriarch Henry Sy Sr. as chair emeritus. Hans Sy and Jeffrey Lim will continue their existing role as president and chief finance officer of the consolidated entity.

“Mr. Henry Sy Sr. has nurtured SM over the past 50 years from a Shoemart store in 1958 to become the Philippines’ leading conglomerate which, after this transaction, will hold one of the leading Asian real estate players today. I am honored to take his legacy forward by announcing this transformational reorganization. The enlarged SM Prime will be in a very good position to take the business up to its next phase of growth,” Henry Sy Jr.

SM Investments chief finance officer Jose Sio said: “This landmark transaction is mutually beneficial for all the stakeholders. The broadened organizational capabilities of the new entity will give it the operational and financial muscle to create additional value in our asset base through accelerated and synergistic projects, not just among the property companies but also among the other core businesses of SMIC, which includes retail operations and banking. Streamlining our real estate businesses under SM Prime would likewise allow SMIC to focus on pursuing new growth opportunities.”

SM Prime president Hans Sy said: “The transaction will help leverage SM’s strong brand franchise and enable us to provide full breadth and depth of management expertise across all our business units. The gain of critical mass should generate economies of scale across various functions including land sourcing, master-planning and coordinated marketing efforts.”

The exchange offers for SMDC and HPI by SM Land will start June 4 and will remain open until July 9 this year. SM Prime’s special stockholder meeting to approve the increase in authorized capital stock for the merger of SM Land and acquisition of real estate companies and assets from SMIC is scheduled to take place on July 10.

The consolidation is expected to be completed by end of 2013, subject to regulatory and stockholder approvals.

BDO Securities Corp. is acting as offer agent for the exchange offers. BDO Capital and Investment Corp., J.P. Morgan (S.E.A.) Ltd. and Macquarie Capital (Singapore) Pte. Limited are acting as financial advisors for the reorganization.

Manabat Sanagustin & Co., the local member firm of KPMG International in the Philippines, is the independent financial advisor to the proposed consolidation.