General Holding Corporation (Senaat), a part of Abu Dhabi’s holding company ADQ, submitted an offer to combine its wholly-owned subsidiary Emirates Steel with Arkan Building Materials Company to create an industrial group with assets of Dh13 billion ($3.54bn).
Under the terms of the proposed deal, Senaat would transfer Emirates Steel to Arkan for a convertible instrument that would automatically convert into approximately 5.1 billion ordinary Arkan shares upon completion of the deal, Senaat said in a statement on Sunday.
The conversion price of the instrument is set at Dh0.798 per share, which values Arkan at about Dh1.4bn. Upon completion, Senaat would own approximately 87.5 per cent of the entire issued share capital of the combined group.
“We believe the combination of Emirates Steel and Arkan presents an excellent opportunity for Arkan’s shareholders, offering increased scale, financial strength, resilience and value via a best-in-class player with international ambitions,” Khalifa Al Suwaidi, chairman of Senaat, said.
“Emirates Steel has invested ahead of the market in upgrading and future-proofing its operations” and the proposed combination of the two companies will “create value for stakeholders in the UAE and beyond”, he added.
Senaat said the proposed combination of Arkan and Emirates Steel would create the largest listed entity of its kind in the UAE. It will also give investors an opportunity for the first time to have access to a steel producer on a UAE bourse, which is expected to have "a positive impact on overall demand and liquidity for the combined group’s shares".
The combined group will also play a key role in delivering the UAE’s industrial strategy "Operation 300bn", Senaat said. It is set to benefit from the post-Covid recovery anticipated in the UAE and a broader pickup in activity within the GCC construction sector as various governmental stimulus programmes fuel spending on infrastructure projects.
The combined entity will compete alongside global industry leaders and will have a "compelling strategic proposition, with strong potential for growth", Senaat said.
The board of Arkan said it will consider the transaction before making any recommendations to shareholders.
"Should an agreement be reached between the two parties, an Arkan general assembly meeting would consider approving the transaction during second half of 2021," the company said in a statement to the Abu Dhabi Securities Exchange, where its shares trade.
“At this time, there is no certainty that any transaction will occur,” it said.
The offer is subject to government approval, including from the Securities and Commodities Authority, as well as the shareholders.
Senaat, which manages more than Dh27.2bn of industrial assets, has holdings in metals, oil and gas services, construction and building materials and food and beverages. In March 2020, ADQ assumed the ownership of Senaat, following which the conglomerate has been consolidating its holdings.
In January, Senaat’s food and beverage subsidiary Agthia completed its merger with Al Foah, the world’s largest date processing and packaging company. Agthia and Al Foah are both owned by ADQ through Senaat.
In February, Abu Dhabi's National Petroleum Construction Company merged with the National Marine Dredging Company. Before the merger, ADQ held a 32 per cent stake in ADX-listed NMDC and was the majority owner of NPCC through Senaat.
ADQ holds government stakes in a broad portfolio of companies, including Abu Dhabi Airports, Abu Dhabi Ports, Emirates Steel, Emirates Nuclear Energy Corporation, Etihad Rail, Abu Dhabi Securities Exchange, healthcare operator Seha, media hub TwoFour 54 and others.
It has merged a number of its subsidiaries over the past year to streamline businesses and create stronger entities. In July, Abu Dhabi Power Company and Abu Dhabi National Energy Company completed a merger to create a utilities business with Dh200bn of assets. Another ADQ-portfolio company Abu Dhabi Ports also acquired industrial zones operator Zones Corp in the same month.