Chatter rocks Aabar and Arabtec stocks

What's down Merger. Market talk takes toll despite assurances from both companies.

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DUBAI // Speculation that the deal between Aabar Investments and Arabtec Holding may hit some snags is proving a drag on the prices of both shares. Aabar, based in Abu Dhabi, last month said it would acquire 70 per cent of Arabtec, the Middle East's largest listed construction firm, in a deal worth Dh6.4 billion (US$1.74bn). Since then, Arabtec and Aabar shares have fallen more than 20 and 7 per cent, respectively.

"Uncertainty over the deal is certainly playing on minds of investors," said Saud Masud, the head of research at UBS Investment Bank. The larger drop for Arabtec reflects investor sentiment that if the deal falls through, the construction giant's shares will come under significant selling pressure, Mr Masud said. Ali Khan, a director at Arqaam Capital in Dubai, said there had been "all sorts of chattering" in the market about the deal falling apart for various reasons, despite the companies insisting that it remained on track.

The sale needs the backing of 75 per cent of Arabtec shareholders and the approval of federal regulators. Arabtec is yet to set a date for an extraordinary meeting where shareholders will vote on the offer. The speculation is noteworthy, given that some traders seemed ahead of the initial announcement of the deal. In the weeks before Aabar announced the bid, share prices of Arabtec rose more than 50 per cent, while Aabar gained about 32 per cent, prompting suspicions that disclosure rules had been violated.

Arabtec maintained that it had complied with all relevant Emirates Securities and Commodities Authority regulations. Wadah al Taha, a market analyst in Dubai, said it was not healthy when investors followed gossip as closely as actual guidance from the firms. "The rise and fall in share prices [of Aabar and Arabtec] proves that if there is lack of transparency, even rumours can play a big role in price movements," Mr al Taha said.

Aabar has made some high-profile investments recently. It spent about Dh25bn on stakes in the German car maker Daimler, the UK aerospace firm Virgin Galactic and 30 per cent of the Brawn GP Formula One team. Arabtec has said it hopes to use cash from the deal to fund further acquisitions.