On Wednesday night (08), Aliansce Sonae (ALSO3) announced the approval of the business combination between itself and brMalls (BRML3) at their respective extraordinary general meetings, ending a six-month period of negotiations full of back and forth . With the approval, an agreement was sealed for the creation of a giant in the shopping center sector.
In a letter signed by the CEOs of both companies, Rafael Sales (Aliansce) and Ruy Kameyama (brMalls) defined this day as historic for Brazilian retail, with the combined company having the potential to expand borders in its new stage.
In April, the companies signed a protocol endorsing the deal, in which Aliansce Sonae will pay brMalls shareholders R$1.25 billion in cash and 326 million in new Aliansce shares.
Valued at approximately R$12 billion in market value, the new company will be the largest mall platform in Latin America, with 69 malls in its portfolio and around 13,000 stores in its establishments, with around 60 million visitors per month. . The new conglomerate must also increase its bargaining power with suppliers and retailers.
As a final step in the process, the companies await the analysis of the Administrative Council for Economic Defense (Cade), so that robust investments in their assets can only be carried out after the approval of the operation by the body.
Both operators will continue to act independently in the coming months while they await the verdict of the process.
As highlighted by Levante Ideias de Investimento, the news is positive for both operators, as they have strong expectations of greater value generation in their businesses due to the synergies between their portfolios in the new combined company.
“In fact, the market reacted optimistically to the approval of the merger, with Aliansce and brMalls shares showing increases of 1.14% and 1.07%, respectively, at the close of trading last Wednesday, against a retraction of 1 .55% shown by the Ibovespa on the same date”, they evaluate. On this Thursday, ALSO3 operates stable, at R$ 18.67, as well as BRML3, at R$ 8.54.
The meeting on the transaction had a quorum of 79.2% of the capital, with shareholders holding 68% of the capital approving the transaction and holders of only 11.2% voting against. A simple majority was required for the transaction to be approved.
“In this way, the almost six-month imbroglio regarding the potential combination of the companies is concluded, with the first rumors having started in mid-November of last year and involving several increments to the proposal initially made by Aliansce” , highlights Levante.
Discussions about synergies
Bradesco BBI points out that the closing of the transaction is positive, although widely expected, and the market will now focus on discussions regarding potential synergies.
During the acquisition process, Aliansce Sonae’s management initially identified a potential Net Potential Value (NPV) of R$1.4 billion-2.5 billion in synergies, although BBI does not rule out that the new combined management adjusts this guidance ( guidance) as the integration process progresses.
The new company will be born with earnings before interest, taxes, depreciation and amortization (Ebitda) of around BRL 1.7 billion (ex-synergies and ex-integration costs), implying an EV/ Ebitda (company value over Ebitda) of 9.0 times, compared to 10.4 times for Iguatemi (IGTI11) and 13.2 times for Multiplan (MULT3). The shares of br Malls (BRML3), until the closing of the day before, were being negotiated with a discount of 5.5% in relation to the final proposal of Aliansce, point out the analysts Bruno Mendonça and Pedro Lobato.
For Citi, the combination of companies after the approved merger should reach R$1.9 billion in Ebitda in 2023, on a pro forma basis. However, point out Andre Mazini and Renata Cabral, analysts at the bank, it will be more complex to deliver the R$ 210 million in proposed annual synergies.
Turning to past experiences, such as URW and Aliansce Sonae itself, Citi projects that the combined companies deliver half of that, or around R$100 million per year. This is because they usually deliver around 5% of the combined Ebitda in synergies.
Looking at an external case, in the case of URW , the integrated company achieved around 4% of synergies, most of which were due to a cut in general and administrative expenses; the profit and financial synergies were very small. There were greater synergies (approximately 5% of Ebitda) when Unibail and Rodamco merged than when the latter merged with the American Westfield. In this case, there is greater difficulty in creating synergies as they are companies with geographies as different as Europe and the United States.
Thus, taking into account that brMalls and Aliansce are in the same country and that, in 2019, when there was the deal between Aliansce and Sonae, the balance was 5% in synergies as a percentage of Ebitda, the projection at this level seems reasonable with this new merger.
Following the announcement of the transaction’s approval, Citi cut the target price for Aliansce Sonae’s shares from R$23 to R$21 (up potential of 12.5% compared to the previous day’s closing), maintaining a neutral recommendation. Analysts highlighted that there were no relevant changes in operating estimates: the revision was made to incorporate the results of the first quarter of 2022 and macroeconomic projections contemplating increases in interest rates.
The expectation is now for a profit of R$ 228 million in 2022, 19% below the previous forecast, and of R$ 338 million in 2023, 13% lower.
Next steps of the operation
After the companies approved the merger, both did not provide many details on the timeline of the next steps. Cade will now analyze the deal and make its closing requirements – known as “Conditions Suspension”. BBI expects this process to take around six months.
Once these conditions are met, companies must formalize their business merger within five days.
In the assessment of Citi, which also projects that the process should last six months, Aliansce Sonae should present the merger proposal to Cade suggesting four assets in the process of sale — Vila Velha, Uberlândia, Londrina and one in Rio de Janeiro.