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Aliansce bets on mini neighborhoods to grow

Shopping mall management company may add R$2bn in revenues

10/26/2022

While awaiting regulatory approvals for the merger with BR Malls, shopping mall management company Alliances Sonae is accelerating other projects. Owner of extensive areas around some of its 27 malls, the company has defined a strategic plan for the 4.4 million square meters of its own land portfolio.

Aliansce segregated the future expansion area from the malls and decided that 2.3 million square meters will be used in multi-use real estate projects — corporate buildings, residential, hotels, hospitals, and schools.

The company is already implementing six of the so-called mini neighborhoods, which total 35 towers and are expected to be completed in four years. With a total potential sales value of R$1.8 billion, those initial projects have less than 300,000 square meters — so there are more than 2 million square meters still to be planned.

Mario Oliveira — Foto: Divulgação

Mario Oliveira — Foto: Divulgação

As the company had to install water, sewage, and power services in many of the lots, it is based on those facilities that the company makes the surrounding area feasible. “In Maceió, we closed a deal with healthcare company Unimed to build a hospital and, incredible as it may seem, it was one of the few plots of land in the city with water and sewage,” said Mario Oliveira, the Portuguese from Porto who is director of new business and M&A at Aliansce Sonae.

“The vision of the masterplan is sustainable: it’s to be a mini neighborhood where you can do everything using the car as little as possible. You can go by bike or on foot from home or hotel to work, to the mall, to class,” he added.

Eight projects are under construction, including a hospital and six residential towers in Maceió, as well as a hotel in Uberlândia (Minas Gerais). Besides the launching of three residential towers in Goiânia, the city hall is approving the project for 14 buildings at Via Parque Shopping, in Barra da Tijuca, Rio de Janeiro.

According to the executive, Aliansce’s investment in these launches is “virtually zero,” since the company has already invested in the infrastructure of the areas at the time of construction of the malls and the new buildings are the responsibility of the developer partners.

The company has cut different deals according to each project. In the case of Unimed, Aliansce sold the land to the doctors’ cooperative, but it has done barter with developers in the buildings, in which it establishes a minimum payment and has an upside according to the total effective sales price.

“We profit on the financial side since the real estate development is on land that is not being used today and, therefore, does not generate any remuneration for the company. We also gain public in our primary mall area,” said Mr. Oliveira.

In Salvador, for example, with 2,600 residential units and an estimated 2,500 people in the corporate buildings, the estimate is of a monthly impact of 60,000 people in the mall, given the recurrence of this customer — for shopping or for a cup of coffee.

“Today the financial market assigns zero value to this in our share, a financial contribution that will appear with time on the financial statement,” the executive said. Aliansce is currently worth R$5.55 billion on the stock exchange — BR Malls, with which it will merge, has a market capitalization of R$8.18 billion.

*By Maria Luíza Filgueiras — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Aliansce, BR Malls to create Brazil’s largest mall operator

Ruy Kameyama and Rafael Sales — Foto: Divulgação/Rafael Magalhães
Ruy Kameyama and Rafael Sales — Foto: Divulgação/Rafael Magalhães

After four busy months, Aliansce Sonae and BR Malls finally agreed to merge operations and create the largest shopping mall company in Latin America. The company is born with 69 malls and R$38.5 billion in sales.

The deal has yet to be confirmed in shareholders’ meetings of both companies, but the signs are favorable. Stocks rose almost 3% on Friday before losing steam. BR Malls rose 0.96% and is up 18.77% this year. Aliansce climbed 0.14% and is up 2.33% this year. The companies’ combined market capitalization is R$13.4 billion – still behind rival Multiplan in this respect.

BR Malls CEO Ruy Kameyama and Aliansce CEO Rafael Sales spoke to Pipeline, Valor’s business website, after a conference call with analysts. The frictions of the last months turned into a harmony even in the color of their shirts.

“We have always said that this combination had strategic merits, but there were divergences regarding price perception. After Aliansce presented the third bid, the deal started to make sense for BR Malls’ shareholders,” Mr. Kameyama said.

Aliansce gave in on some points, increasing the share paid in stocks – BR Malls will own 55.1% of the new company and receive R$1.25 billion in cash. BR Malls also gave in: Aliansce will have the number of seats it wanted on the board of directors, a condition that generated resistance at first.

The decision was not unanimous within BR Malls. Director Mauro Cunha voted against the merger, citing governance issues yet to be resolved – such as the revision of a shareholders’ agreement of Aliansce’s controlling stockholders –, the timeline for the operation, which will depend on the next elected board, and the high risks of execution. For the majority of board members, however, the alignments in this item were sufficient to vote for the merger.

There will be nine board members – four appointed by Aliansce, two by BR Malls and three independent ones. “Since BR Malls has no defined controlling shareholder, in practice there are five independent directors,” Mr. Sales said.

There was a change in the clause to avoid a shareholder or block from increasing its stake. “There was a change in the poison pill to 25% from 30% and this, with the majority of board members independent, preserves the new company as a corporation but recognizes the importance of Aliansce’s long-term shareholders as well,” Mr. Kameyama said.

The control block of Aliansce, which currently holds 48.8% of the company, will hold 23% of the combined company. This group is formed by the Canada Pension Plan Investments (CPPIB), businessman Renato Rique, Germany’s Cura Brazil and Portugal’s Sonae.

The bid is 17% higher than the first one, from January, but is similar in current financial terms to the second bid, from March. The difference is in the currency: less cash, more stocks. “Since we see a potential appreciation in the share value of the new company, this creates a better opportunity for shareholders,” the BR Malls CEO said.

“In addition, the exchange ratio means a spread of almost 30% in the companies’ EBITDA multiples on the stock exchange, which was an important recognition by Aliansce of BR Malls’s value,” he added.

The synergies are initially estimated at R$210 million per year. Aliansce worked with McKinsey, while BR Malls hired Bain&Company to assess economies of scale and cost efficiency gains, reaching similar figures for the combined company.

“We will have synergies on all fronts. In the commercial one, the fact that we will become a great partner of storeowners, of entertainment, will give us the opportunity to draw and strengthen the contracts we already have. And, as much as the two companies already have efficiency, costs are lowered as the combined company is almost twice as big as the two were individually,” Mr. Sales said.

He also cites the access to capital markets of the more robust company. The merger can also unlock value in digital initiatives and integration with the brick-and-mortar network, which has demanded investments from both companies.

Aliansce and BR Malls do not expect problems from a market concentration standpoint, for competition purposes and also for portfolio strategy. “The overlap is relatively low. Our market is very little concentrated, we are going to have 17% to 20% market share just in malls, without considering retail as a whole,” Mr. Sales said.

“That is why we expect the divestment required to bring the deal into line with antitrust rules to be small, in three or four regions,” the CEO of Aliansce said

On Friday afternoon, BR Malls elected a new board of directors – with the announced agreement, it was clear that the board will lead the integration of the companies.

The merger may be confirmed in about 40 days by the shareholders. The companies will call extraordinary meetings by May 10, so that they can take place by June 9. If approved, the deal will still depend on antitrust regulator CADE’s evaluation period, between the end of the year and the beginning of 2023. The executive management will be defined by the board of the new company.

Aliansce was advised by bank BTG Pactual and law firm Barbosa Mussnich e Aragão. Itaú BBA and Spinelli Advogados are advising BR Malls.

(Felipe Laurence and Raquel Brandão contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Aliansce, BR Malls closer to merge operations

Shopping mall operator Aliansce Sonae made its third proposal of the year for a merger with BR Malls — and this once it had a considerable advance. BR Malls agreed to discuss the terms and take the decision to a vote of the shareholders. The previous offers had been rejected by the board.

The real possibility of combining the businesses, in a deal that was becoming a battle, encouraged investors. Aliansce shares rose 1% and BR Malls shares gained 7.9%.

This time, Aliansce offered to pay R$1.25 billion in cash to BR Malls shareholders and, in the exchange ratio, add 326,339,911 shares — in the proportion of 0.39 shares per BR Malls share. This is the lowest amount in cash offered so far, but the highest percentage in shares, one of the main points questioned by BR Malls’s management team about the previous offers.

In the current exchange ratio, BR Malls would get 55.2% of the combined company plus the cash payment, compared to 51% plus R$1.85 billion under the terms presented in March and 50% offered in January with R$1.35 billion in cash.

In financial terms, the second and third proposals are even similar. Combined, Aliansce and BR Malls are worth R$13.48 billion. Therefore, the additional 4.2% in share capital in relation to the second proposal is worth R$566 million.

But it makes a difference the currency in which this amount is paid. The main advantage in the current offer would be the new potential high with the companies added together and in governance, as it guarantees a majority to BR Malls shareholders.

Valid for 10 days, the proposal was presented to BR Malls on Monday and the company had committed to hold a board meeting on Tuesday to evaluate it. BR Malls communicated in a material fact notice that the board unanimously decided to authorize the executive board to negotiate the terms with representatives of Aliansce and prepare documents for an extraordinary meeting.

BR Malls understands that the adjustment in share capital is a “demonstration of willingness and commitment” by Aliansce — but that there are still terms to be discussed.

Joao Roberto Teixeira — Foto: Silvia Zambonii / Valor
Joao Roberto Teixeira — Foto: Silvia Zambonii / Valor

“We have taken an important step now to engage the two companies in dialogue and take the new proposal to the meeting. Our approach is constructive, aiming at an understanding,” João Roberto Teixeira, a board member at BR Malls, told Valor’s business website Pipeline. “This does not mean that we agree with this price, and still requires us to evaluate a set of fundamental aspects to set a deal.”

Among these aspects are issues such as company governance (the composition of the board, for example, a point that created friction in the first proposal, has not yet been discussed), dividend policy, management composition and portfolio composition (which assets the company would have to get rid of in a merger, for example, due to overlaps in some regions).

With this discussion and documents in hand, BR Malls’s management team will give its voting recommendation to shareholders, for approval or not of the merger — even if it is the investors’ decision.

“We are still exploring other alternatives, without any kind of exclusivity with Aliansce,” Mr. Teixeira said. The company is still in talks with Ancar, but this is a slower negotiation.

Analysts have a positive view on the new proposal from Aliansce. Bradesco BBI’s Bruno Mendonça and Pedro Lobato pointed out that the new terms imply a premium of 13% over BR Malls shares, considering Tuesday’s price. They estimate that the new company would be negotiated at a multiple of 9.4 times the enterprise value to EBITDA (of 2022), excluding synergies — an attractive price, they say.

Citi also now sees a greater possibility of approval than rejection of the proposal. BR Malls is advised by Itaú BBA, while Aliansce hired BTG Pactual.

In addition to the adjustment of terms, BR Malls’s decision on the new approach of the rival may also be linked to pressure from asset managers such as Truxt, Miles and Oceana. For these firms, the issue should have already been put to a vote by shareholders in the second offer.

The tone between the companies was also raised last month when BR Malls required the antitrust regulator CADE to evaluate the behavior of the competitor — in addition to having requested an injunction to prevent Aliansce from exercising its political rights as an investor. Aliansce owns about 11% of BR Malls and had already requested the list of shareholders of the target company.

Sources say that Aliansce delivered this week its arguments to the CADE, and now the regulator is evaluating the position of each side. If the merger goes ahead, they may not even need the watchdog’s opinion on the issue of political rights.

The original story in Portuguese was first published on Valor’s business website Pipeline.

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