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Sandy Li

Midland Realty (Holdings) has agreed to acquire struggling rival Hong Kong Property from Cheung Kong (Holdings), creating the SAR's biggest property agency.

 Midland will pay no cash for the acquisition, instead issuing convertible bonds to Cheung Kong's 89 per cent-owned subsidiary Hong Kong Property Services (Agency).

 The bonds can be converted into 58 million new shares in Midland, Hong Kong's only listed property agency, at HK$1.20 a share within two years.

 Midland shares were suspended pending announcement of the deal at 98 cents yesterday lunchtime, having risen 6.5 per cent, or six cents, in the morning session.

 If the bonds are fully converted, at a cost of HK$69.6 million, the Cheung Kong unit will hold 10 per cent of Midland's enlarged share capital, becoming its second-biggest shareholder.

 Property agencies have been under pressure to consolidate amid intense competition and a weak market, which remains depressed after prices and transactions plunged in the wake of the Asian financial crisis.

 Hong Kong Property has long been seen as one of the weaker players and a prime target for acquisition.

 It will add 25 branches and 300 employees to Midland Realty's 148 branches and 1,800 employees. But the combined total of 173 branches is still well below the 273 Midland had at its peak in 1997.

 Privately run Centaline Property Agency is Midland's biggest competitor with about 160 branches.

 Midland's market share in the property agency sector would increase to more than 30 per cent from 20-25 per cent after adding Hong Kong Property's business, company executives said yesterday.

 Midland chairman Freddie Wong Kin-yip said there would be no lay-offs or changes of management after the deal.

 Mr Wong said Midland Realty Agency and Hong Kong Property Agency would continue under their separate names although they would come under the same holding company.

 Hong Kong Property managing director Michael Choi Ngai-min, who will retain his post, said the two companies could compete with each other but also co-operate to achieve transactions.

 In a separate move, Cheung Kong will acquire a 20 per cent stake in Midland Cyber Agency, the Internet arm of Midland, for HK$40 million with an option to take an extra 5 per cent stake before the venture's listing.

 Midland chief financial officer Kelvin Lo said Midland Cyber would seek a listing on the Growth Enterprise Market this year and planned to sell 10 per cent of its shares publicly.

 Another listed company was likely to take 10 to 20 per cent in Midland Cyber this month.

 With more than $100 million for expansion, Midland Cyber activities include an on-line auction and a cyber-mall.

 Centaline managing director Shih Wing-ching said he was not worried about Midland's purchase of Hong Kong Property.

 However, his company, in a move he said was unrelated to the Midland acquisition, from today would increase its commission-sharing ratio with employees to a uniform 30 per cent to fend off competition.

 Agents formerly shared 10-35 per cent of the commission from a deal in the primary market, subject to transaction value.



Midland homes in on rival