Emaar: the case for a corporate break up

Anil Bhoyrul suggests a full scale demerger of Emaar should be considered
By Anil Bhoyrul
Sat 23 Nov 2013 03:25 PM

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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