KUALA LUMPUR: AmResearch views the proposed merger of SUNWAY CITY BHD [] and SUNWAY HOLDINGS BHD [] as positive.

It said on Thursday, Nov 25 the new company, which would take over the listing of both companies, is offering to acquire SunCity shares at RM5.10/share and Sunway Holdings' at RM2.60/share with a total consideration of RM4.5 billion.

"We understand that after the disposal of the businesses of SunCity, the group would return all proceeds amounting to the offer price to the shareholders, warrant holders, and holders of the ESOS options of SunCity by way of a capital repayment and reduction exercise under which all SunCity shares will be cancelled," it said.

Warrant holders would also be paid RM1.29 per warrant that has yet to be exercised and the group would proceed to cancel all the outstanding warrants. Under this Warrant Scheme, the warrant holders of Suncity shall receive RM1.29 per warrant via a combination of Newco shares (80% of offer) and the remaining 20% would be satisfied via cash.

"We think the offer is attractive: (1) The offer price of RM5.10/share represents a premium of 23% to our fair value of RM4.13/share. Our fair value is arrived at after applying a 30% discount to our estimated NAV of RM5.90/share.

"An opportunity for SunCity shareholders to move to a larger entity and a more liquid company where property development would be the main contributor to earnings - about 50%. The management indicated yesterday that the main focus of this company would be in the property development," it said.

Meanwhile, SunCity reported core earnings of RM30mil in 3QFY10, which brings its cumulative 9MFY10 core earnings to RM111 million.

"This is short of expectations, accounting for only 63% and 48% of our and street's estimates, respectively," it said.