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