Emaar: the case for a corporate break up

Anil Bhoyrul suggests a full scale demerger of Emaar should be considered

Anyone with a very long memory may well remember 1996 as a watershed year for business. That was the time when the Hanson Group – run by two of the world’s greatest ever businessmen James Hanson and Gordon White – decided to break itself up.

It went from being a diversified conglomerate into four separate listed companies.  A year after Gordon White died, James Hanson dared to prove that the impossible was actually possible.

One of today’s great corporate leaders, Emaar chairman Mohamed Alabbar, may well be pondering something similar. In an interview with Bloomberg Television  last week, Alabbar said he had once considered, and may yet do so again, spinning off Emaar’s retail unit into a separate entity.

In truth, there is a case to be made for Alabbar going much further and doing a “Hanson” – breaking up the entire company into several different, separately listed, groups.

Why? For the very simple reason that even by the most conservative estimate, Emaar would be worth at least twice more than it is today by breaking up.  At the time of writing, Emaar’s share price is AED6.26, giving it a market value of close to $10.4bn. The 73 percent share price jump this year has been remarkable.

But does this valuation really do Emaar justice? Back in June 2005, the company was worth $36bn. At the current growth rate, you can see Emaar soon being worth $11bn, $12bn, even $13bn. But how far can it go?

Examine for a moment the other option of breaking up. According to analysts the recurring revenues on the retail and hospitality side of the business will reach $1.3bn this year. On a likely earnings multiple of 12, and you can soon  see a $10bn valuation for the retail and hospitality side.  There is a good case to be made for adding a considerable amount more given these are recurring revenues, possibly even taking you to $15bn (when you take into account the brand value of Dubai Mall, its visitor numbers and several entertainment spin offs such as the Dubai Aquarium). Even if you just classify the rest as Emaar Real Estate, the company's land bank is surely worth at least $5bn. A conservative value on future earnings is, I would estimate, $7bn.

Which means that even just splitting Emaar into three entities (ideally listed in both London and Dubai) has the potential for a total value of $27bn.  Even if you mark all these numbers down by 50 percent (which some experts would as a rule of thumb), the total is still way more than Emaar is likely to reach in the next few years on its current course.

And it could actually be a lot more. Where exactly does the “Downtown” brand fit into all this?  What happens to Emaar International?  Best of all, the company’s future would not be so intrinsically linked to the fluctuations of the property market.

Significantly, any break up would also unlock greater value from individual brands. Take The Address  Hotels & Resorts, which in my view is one of the best hotel brands anywhere in the world – but also in my view, hampered by its ties to Emaar. Let loose, there is a lot of money to be made by becoming an  operator for other developers both in Dubai and globally.

Of course, any break up would be hugely complex and there would be many issues to be resolved long before hand. But anyone who has tracked Mohamed Alabbar’s career closely will tell you two things for certain about him: he is not afraid of taking risks, and he will always do what’s right for Emaar.

Two good reasons why 2014 could be the year Emaar breaks up.

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Posted by: Peter Cooper

Not sure taking Mohamed Alabbar out of the running of any of these units would be a good idea. People always think anybody could do it as a qualified manager but such entrepreneurial talent is extremely rare and he made Emaar what it is today. Where are the Hanson companies now?

Posted by: Paolo C

Who really knows what the revenues are (if there are any) in a country where you, as a property owner, cannot even ask for a balance sheet of expenses backed up by invoices in a residential building? The share price reflects this gray market.

Posted by: OldTownResident

It is right to break this company up because its current structure leads to contention between its divisions that the company fails to manage properly to the detriment of customers. The way in which the Yansoon district in Old Town has been blighted by the retail division's insistence on prioritising the rights of cheap takeaway restaurants in the mixed-use buildings over those of the owners of residential units is a scandal. We now pay our high service charges to live in a community plagued by noise and overrun with takeway delivery boys and waiters hanging around the communal areas frightenning our children, littering and behaving poorly. The answer that the residential team give to residents is that they agree with us but that the retail people couldn't care less about residential tenants, they only want to maximize retail revenues -nothing ever gets done because of the stalemate of these two divsions - the sooner the conflict of interest is removed, the better.

Posted by: Rajesh

who is going to benefit from breaking in two we the shareholders who have hold the stock for years and made what emaar is today or retail business witch is big money spinner at present all will be put in one box and old seniors who have given hard earning looking this child to grow what are they going to get just left over.
or their is something more broad hearted for old investors who have lost so much in downturn. I am still waiting to hear

Posted by: Abdulla

Why are you applying 10x (an earnings multiple) to $1.3Bn, a revenue figure? Your math seems dubious at best..

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