KUWAIT CITY, May 2: Al Mazaya Holding, whose board of directors earlier this month approved the proposal for the acquisition of the remaining stake of subsidiaries First Dubai and Waterfront (36% and 21% respectively), has appointed financial services firm, Kuwait Finance and Investment Co. (KFIC), as the transaction manager for the acquisition.
The transaction, commonly referred to as a stock swap, will be executed in two stages, starting with the selling of First Dubai and Waterfront shares held by interested minority shareholders to Mazaya, and then issuing new Mazaya shares to the selling shareholders. Accordingly this shall be a conditional acquisition and for all the related tasks to be conducted, could take up to 12 weeks.
Says Eng. Khalid Esbaitah, CEO and Managing Director of Al Mazaya Holding: “KFIC has an unblemished track record, having repeatedly provided this resource intensive service to a number of corporations in the Gulf with great success. We are confident in our choice, and believe that the team will effectively and efficiently manage the stock swap and execute the acquisition.”
Says KFIC’s Chief Executive Officer, Sanaa Joma’a: “KFIC has a solid record of successful execution of stock swaps and other transactions that mandate an intermediary. On the Mazaya transaction, we are allocating dedicated resources and talents to ensure an easy and swift execution of the transaction for the interested shareholders. Our goal, in line with Mazaya’s, is to effectively and efficiently managing the stock swap to execute the acquisition, and providing a quality service to the participating First Dubai and Waterfront shareholders.”
Al Mazaya in coordination with a number of financial advisors implemented different financial techniques to derive a fair Swap Ratio for this deal. All derived results ranged from 3 shares of First Dubai against 1 share for Mazaya to 2.75 shares of First Dubai against 1 share for Mazaya.
Says Esbaitah: “We had to do a sensitivity analysis for all derived ratios in order to select the most attractive ratio to current First Dubai and Waterfront shareholders, and which shall have a reasonable and acceptable effect on current Mazaya shareholders. So we reached to a conclusion that a swap ratio of 2.75 shares of First Dubai against 1 share of Mazaya, which is based on the weighted average closing price of Al Mazaya Holding and First Dubai shares during the last three months, would have a negligible effect on current Mazaya shareholders and conversely, it would give additional benefit to the minority shareholders of First Dubai & Waterfront and they would be more benefited by swapping their shares rather than selling it in the market.”
“As the Waterfront Real Estate Development Company is not listed, there is no market price for its shares so far. Therefore, the Swap Ratio was derived from the book value per share as of 31st of December 2009, and accordingly we can see that the ratio would be 5.5 shares from Waterfront against 1 share from Mazaya”, he added.
Commenting on the deals announced prices, Esbaitah says: “This transaction is fully based on derived swap ratios that shall always be the basis for executing this deal and for any party analyzing it, but from a corporate governance and compliance angel and as per Kuwait commercial laws, we had to fix the prices at which the deal should be executed and the best basis for the price assignment at the board announcement date was the market price of First Dubai. Although we do not see that the announced prices for the deal execution shall represent the real values of any of the three companies on standalone basis (Al Mazaya, First Dubai or Waterfront). Noting that Mazaya’s book value per share is Fils 276 and its estimated net asset value per share is Fils 368”. 
According to Esbaitah, the transaction holds various benefits for current First Dubai and Waterfront shareholders. “First of all, we expect Mazaya to have higher potential than First Dubai and Waterfront in terms of profitability, market price performance and dividends distribution,” he explains.
“In addition, this swap will result in a much higher risk diversification for First Dubai and Waterfront shareholders since Mazaya is more operationally and geographically diversified. Accordingly current shareholders at First Dubai and Waterfront shall benefit from current operations and profitability of Mazaya and also continue to benefit from any future potential of these companies since they will indirectly retain ownership.”
Established in 2003, First Dubai Real Estate Development Company is a Kuwaiti shareholding company with paid up capital of KD 100 Million. It was created specifically for real estate development and investment in the State of Kuwait and the United Arab Emirates (UAE).
Waterfront Real Estate Development Company, established with the aim of constructing four residential towers in the Dubai Waterfront District, was incorporated in 2008 with a KD 50 million capital.