Abu Dhabi Abu Dhabi's stock market has already priced in a one-for-one share valuation in a proposed merger between real estate developers Aldar and Sorouh, analysts said Tuesday.

The share price of each company has moved almost in tandem ever since the companies announced in March they had started talks on a possible merger.

Furthermore, Aldar and Sorouh have moved by the exact same percentage amount in the last five consecutive trading sessions on the Abu Dhabi Securities Exchange (ADX); a situation analysts say is a sign that a merger is being viewed as a formality at a one-for-one share ratio — meaning shareholders will get one share in any new entity for each share they hold in Aldar and Sorouh.

"The stocks have been moving in tandem for the last five sessions, which is an indicator the market has assumed a merger between the two companies is a done deal," Haissam Arabi, chief executive and fund manager at Gulfmena Investments, said.

Aldar's debt load

"The market is also saying it is likely to be a one-for-one equity merger. Aldar has a much higher asset base but the company also has huge debt problems whereas Sorouh has fewer assets but a cleaner balance sheet," he added.

"We know very little [about the potential merger]. There is a good chance it will happen but there has been no news. The way the share price of each company has been moving in lockstep suggests the market believes a merger is already a done deal but that is not the case," he added.

Aldar Properties and Sorouh, which have a combined market cap of Dh6.7 billion, announced in March they had started talks on a possible merger. A working group was set up to study the proposal for three months, after which a recommendation will be made on whether to integrate the two developers.

Mergers seldom occur on a one-to-one basis and exchanging one share of a firm's stock typically does not get an investor one share of the newly merged company's stock. But analysts believe there is no room for arbitrage in the case of Aldar and Sorouh and that the market has already discounted for a scenario whereby one Aldar or Sorouh share can be exchange for one share in any new entity.

"The share price movement [of Aldar and Sorouh] is not normal," Mohammad Ali Yasin, a capital markets specialist based in the UAE, said. "It is certainly an indication that both companies are closer to making a decision over a proposed merger. The new entity will be on a one-for-one share valuation otherwise we would not be seeing identical prices," he added.

A spokesperson for Aldar told Gulf News Tuesday the company would not speculate on the outcome of the review process.

Comprehensive review

"As previously announced, Aldar is in very early stage discussions with Sorouh regarding a possible merger. A comprehensive review process involving both parties has been initiated to assess all legal and business aspects and to evaluate if a potential business combination would be in the best interest of our stakeholders," the Aldar spokesperson said. Sorouh declined to comment on the matter.

Aldar Properties and Sorouh both gained 2.56 per cent to Dh1.2 and Dh1.18, respectively, on the ADX yesterday; the fifth consecutive session where the stocks have moved by the exact same percentage amount.

"There has been no explicit news about the merger but given the shares are moving in lockstep, it seems the market has already assumed it is already a done deal," Anastasios Dalgiannakis, institutional trading manager at Mubasher Financial Services, said. "Investors are convinced this combined entity will happen," he added.