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Friday, May 9, 2014

MEGAWORLD CORPROATION (MEG): Offers to acquire AGI’s stake in GERI

MEG to acquire GERI stake from AGI. MEG has agreed to purchase the 49.20% stake of Alliance Global Inc. (AGI) in Global-Estate Resorts (GERI) for a total purchase price of Php10.43 Bil or Php1.93 per share. After the acquisition, MEG will own 74.96% of GERI and will initiate a mandatory tender offer for the remaining GERI shares held by minority shareholders at Php1.93 per share.

Financing not a problem. MEG will pay for the transaction in cash as it has Php31.75 Bil in cash and cash equivalents as of end FY13. MEG may temporarily have to borrow around Php7 Bil but this should not be a problem for the company. MEG has expressed plans to sell its 8.99% stake in RWM which is valued at Php13.82 Bil based on the current market price of RWM. The sale of this would put MEG back in net cash position.

Consolidation complete.The acquisition will complete the consolidation of all real estate businesses of AGI under MEG, enabling MEG to capitalize on growth opportunities of the property market. We have no changes in our fair value estimate for MEG at this point but we believe this will be NAV accretive to MEG as the company is in a better position to unlock the value of GERI’s landbank through future developments.

Reiterate BUY on MEG. We reiterate our BUY rating on MEG with a fair value estimate of Php5.48.

- Col Financial

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