An Arabtec construction site at Business Bay. In 2018, Arabtec said it plans to secure new projects, recycle capital, and ensure on-time and on-budget delivery of projects. The company is then targeting growth in 2019, which will also see a return to dividend distribution. Image Credit: Virendra SaklanilGulf News Archives

Arabtec in talks to merge with Trojan Holdings

Merger would give Arabtec greater market share amid challenging environmentDubai: Arabtec Holding, the construction firm that helped build the world’s tallest tower, confirmed on Tuesday that it is in discussions about a possible merger with Trojan Holding, an Abu Dhabi-based contractor.

The two sides have commenced a review “of the possibility of combining their construction businesses,” Arabtec said, adding that if a deal is reached, it may lead to a merger between Arabtec and Trojan.

The confirmation on Tuesday comes after Arabtec said last week that it was “willing to explore the possibility” of collaboration with Trojan Holding. The company did not say it was considering a merger at the time, only saying it was considering “a cooperation agreement” that allow the two companies to collaborate in the construction sector.

Advisers on the potential merger are yet to be appointed, and reviews on technical, financial, and legal matters are yet to begin.

The announcement comes at a time when construction firms are still grappling with a number of challenges including low profit margins and an overall slowdown in demand in the property sector.

Tariq Qaqish, managing director of asset management at Menacorp, said a merger would allow the companies to gain market share in an environment that is still difficult and in need of consolidation.

“Partnering with competitors would mean higher capacity of capital and delivery capabilities. In a very low margin business, it makes sense to have a greater negotiation power to be able to obtain higher margins,” he said.

Arabtec in reported its second consecutive year of profitability in 2018, with Dh256.3 million in profits. This followed large losses in 2015 and 2016. At one point, it had Dh3.4 billion in losses and was forced to pull money from its statutory reserve.

With a new chief executive at the helm in late November 2016, Arabtec was able to implement a strategy that set the business back on track to profitability. That CEO, Hamish Tyrwhitt, stepped down from the position in May 2019 and was replaced by then-chief financial officer Peter Pollard.

“The sector needs more consolidation,” Menacorp’s Qaqish said. “However, not every transaction will bring value to shareholders. Synergies and cost savings are key factors to a successful [merger].”

The company Arabtec is in talks with, Trojan, is a private company that was created in 2012. On its website, Trojan says its companies worked on the construction of projects that include the W Hotel in Dubai, Rove Hotel, Yas Acres, Cranleigh School, and Viceroy Hotel, among others.

Trojan Holding owns interest in companies that include Trojan General contracting, Reem Emirates Aluminium, Al Maha Modular Streel Factory, and that it is working on “several projects” in six countries across the Middle East, Africa, and Europe.