An article by Rappler.com

A few months ago, the SM group of Henry Sy announced the merger of its subsidiary companies connected to real estate, namely SM Prime Holdings, Inc., SM Investment Corporation, SM Land, Inc., and SM Development Corporation.[1] The said merger is set to dislodge Ayala Land Inc. as the country’s largest real estate developer in terms of market capitalization.

According to Rappler.com, SM Prime will become the surviving entity with a combined market capitalization of Php 591 billion based on May 30 closing prices. Ayala Land Inc. has Php 461.4 billion in its portfolio at present.

SM has decided to merge its units because of scale and synergies. The officials of the group want to create a property behemoth that would cater to the different needs of its customers. Through this merger, they hope to combine residential, hotel, office, and shopping mall businesses into one vehicle and make the experience of their customers more enjoyable. Furthermore, SM wants to attract more investors who want a stable company and a good return on investment.

In connection to this, the merging of mall and property units of SM group gives several advantages for the owners and shareholders of these companies. By consolidating 4 of SMIC's property firms (SM Prime, SM Development Corp., SM Highlands Prime and SM Land), the consolidated "SM Prime" will gain the upper-hand not only in the real estate industry in the Philippines but also in the real estate industry in Southeast Asia. Once the consolidation is complete, it will dislodge Ayala Land, Inc. (the biggest listed property firm so far at present that has P409.56 B market capitalization) with an estimated P591B current market capitalization. Marketing their products will become easier because they have the figures to show to their customers that the company is stable and reliable. Second, it would allow the SM group to create their intended "integrated real estate company that will undertake larger scale projects with the participation of all its business units." In fact, SM is planning to create more Mall of Asia-like projects that utilize the capabilities of all its subsidiaries.[2]

Also, just like Ayala Land Inc. and other real estate firms are known for, it would give SM group their desired "template for growth" under the SM Prime that is engaged in mixed-use and integrated establishments for its future developments. Aside from these, they would also have a simpler, bigger and united corporate structure under SM Prime. These would result to attracting more investors with a bigger asset and a venue to facilitate bigger market capitalization which can be invested in the company. These would eventually result to the efficiency of the businesses under SM group with the increase cooperation among the different units of the company.

However, difficulties of consolidating its different units are inevitable in the process. The merging would cost them some transaction cost especially in arranging all the legal documents, meeting and convincing their shareholders, acquiring and transferring of shares etc. There could also be higher risks faced by the company in the future with bigger structure and larger-scale investments.

[1] Rappler, “SM group creates property behemoth,” Rappler.com,  last modified June 1, 2013, http://www.rappler.com/business/industries/175-real-estate/30334-major-property-merger-sy-group-sm-prime-smdc-highlands

[2] Aya Lowe, “More Mall of Asia-like projects for merged SM units,” Rappler.com, last modified July 12, 2013, http://www.rappler.com/business/33425-more-mall-of-asia-like-projects-for-merged-sm-units

Group members:

Syrell Barlam
Rafael Manalili
Josh Miguel
Rhenz Perdido

9/27/2013 06:26:33 pm

SM group creates property behemoth...Very nice and helpful information has been given in this article. I like the way you explain the things. Keep posting. Thanks..

Reply
9/30/2013 08:23:56 pm

Aw, it was a top quality content. Actually I would like to write like this as well - taking time and real energy to bring about an excellent post… however what can I say… I procrastinate an awful lot and by no means appear to get things completed…

Reply



Leave a Reply.