China Cement:CNBM and Sinoma merger first thoughts –deal unlikely to go through

Each share of Sinoma would get 0.85share of CNBM: a 19.2% premium

    CNBM and Sinoma announced their merger plan after market close on 8-Sep.In a nutshell, CNBM has announced its intention to acquire Sinoma via a shareswap of 0.85CNBM shares for 1share of Sinoma. Using the latest share price ofHKD3.58/sh for Sinoma and HKD5.02/sh for CNBM, this conversion ratio impliesa 19.2% acquisition premium to Sinoma or 0.7x P/B for FY18. Upon completion ofthe deal, Sinoma would be delisted and CNBM would be the only H-share-listedcompany within the CNBM Group. There was no mention of further restructuringto its A-share-listed subsidiaries at this point in time for both companies. Sincethis is considered a material asset restructuring, the success of the deal hingeson approvals by both CNBM and Sinoma's independent shareholders, whichcould be tough to get, in our view, given the unattractive valuation for Sinomashareholders. Further, we see very few synergies with the merger since only20mt of clinker capacity overlaps between the two companies (see our note'Happily ever after when two becomes one? U/G CNBM to Hold' dated 26-Jan-16).Sinoma’s cement exposure is mainly in NW China, while CNBM is more aboutCentral and East China. Both shares will resume trading on Monday (11-Sep-17)and an analyst briefing will be held in Hong Kong after market close the same day.