Ashtrom, Kardan weigh merging units
The merger would help both companies better utilize the backlog of home-construction contracts they each have in the center of the country.
Ashtrom Group and Kardan Israel said on Wednesday that they are in talks to create a joint-venture residential building company that would become one of Israel's largest such companies.
The two sides are talking about merging Kardan's Kardan Real Estate subsidiary into Ashdar, a wholly-owned unit of Ashtrom. The merger would help both companies better utilize the backlog of home-construction contracts they each have in the center of the country. It would also allow them to cut costs and enjoy economies of scale, the companies said.
The combined company would have home-building projects of about 6,600 units lined up. It would have equity of NIS 700 million and its market capitalization would be large enough to qualify it for membership in some of the Tel Aviv Stock Exchange indices. That would likely lead to increased trading in the stock. Today, Ashdar sees trading volume of NIS 94,000 daily and Kardan Real Estate about NIS 41,000.
The companies have similar market caps (in the range of NIS 170 million to NIS 180 million ) and similar levels of shareholders' equity (NIS 340 million to NIS 360 million ). But Ashdar is likely to be the biggest shareholder in a merged entity because it has a bigger backlog of real estate projects and, as a result, higher levels of projected profits.
Ashdar is involved in projects totaling 9,631 units. Although some of them are in joint venture, its share amounts to 5,866 units. Of those, 2,076 are expected to be completed and sold over the next four years, generating revenues of NIS 3.5 billion and a gross profit of NIS 720 million, or a 20.5% margin.
Kardan Real Estate is participating in the construction of about 2,600 units, it share of them equal to 773 homes. From that, it projects gross profit of NIS 133 million over the next two years.
Ashdar also controls four income-generating properties with 49,000 square meters of floor space and NIS 12 million of revenue, as well as equity interests in residential development projects. Kardan has a property portfolio of 57,000 square meters over four buildings.