Dubai: Manama-based Gulf Finance House said on Tuesday it has been in discussion with Shuaa Capital to buy a majority stake in the Dubai-based investment firm, and successful talks could potentially create an entity with a market cap of Dh9 billion.
Confirming rumours that had spurred a rally in shares of both companies on Sunday, GFH said they are in discussions with several other financial institutions for a possible merger. However, no financial decision has been reached as yet, GFH said in a statement posted on Dubai Financial Market’s website.
GFH is unable to disclose any further information at this stage, due to confidentiality of the discussions with the counterparties, the company, which has a dual listing in Bahrain and Dubai, said in the statement.
“We will have a bigger conglomerate coming in, and a bigger conglomerate will do more things than a smaller one,” Sanyalaksna Manibhandu, director Research, National Bank of Abu Dhabi Securities said.
Analysts said that the transaction may be completed in share and not in cash. “Given that they started at the same place in terms of share price, the stock market performance over the past 12 is not barrier to do the deal because they both gone up by big margins,” said Manibhandu.
Shares of GFH have gained 300 per cent in the past one year, and has a market cap of Dh6.77 billion, while Shuaa gained 290 per cent in the same time period, giving it a market cap of Dh1.97 billion.
Earlier reports quoted Shuaa Chairman Jassim Al Seddiqi as saying that the firm was discussing a potential share-swap merger that could be worth billions of dirhams with a larger, regional institution. He, however, did not name the companies.
Abu Dhabi Financial Group, of which Al Seddiqi is also the chief executive officer, backs GFH and Shuaa Capital, and they remained unavailable for a comment.
If the merger between GFH and Shuaa is successful, it would further consolidate the trend on companies getting together to derive scale, even as valuations remain battered due to falling prices of oil, on which Gulf countries derive their majority of their revenues.
“Even before the news today, we saw how Shuaa bought into Integrated Capital. Shuaa has been doing banking till early last year. Now they will do investment banking and banking. And now if they a combination with GFH, they will be a bigger financial conglomerate,” Manibhandu said.
Last year, First Gulf Bank and National Bank of Abu Dhabi merged to create a $175 billion lender, which will create one of the largest banks in the Middle East and Africa.