PLAYMATES International is being turned into a property company in a $1.378 billion paper transaction that spins off the toy company and adds Chan family property assets to the parent's investment portfolio. Minority shareholders will end up with consolidated shares in the transformed Playmates International and new shares in Playmates Toys Holdings, which is expected to be listed on the exchange through an introduction. The controlling shareholders in the transaction will yield a paper profit of $608 million from selling their property portfolio to Playmates International, according to the transaction document. Under the terms of the deal this will be taken in shares and not cash. The deal involves the acquisition by Playmates (BVI), a wholly owned subsidiary of Playmates, of the entire issued share capital of Playmates Properties International from Playmates Investments, a company owning 45.5 per cent of Playmates International with beneficial ownership by the Chan family. It proposes a distribution of all Playmates Toys Holdings shares, representing the entire issued share capital of the company, to the shareholders of Playmates International by way of a special dividend. With the listing of Playmates Toys, Playmates International is expected to change its name to Playmates Properties. In summary, the Chan family property is being injected into Playmates International to create a bigger property portfolio for the listed company while the toy business is being spun off. Also planned under the transaction, advised by Schroders Asia, is a consolidation of Playmates shares on a two-for-one basis. The $1.37 billion consideration in the acquisition of the Chan property is to be satisfied by the issue of 520.59 million shares, or 260.3 million consolidated shares. This represents 65.9 per cent of the existing share capital of the group, at $2.647 a share, a 10 per cent discount to the $2.95 closing average of Playmates International over the past 30 days. The properties in the transaction have been appraised by C.Y. Leung which valued the properties of the group at September 30 at $3.26 billion. Taking into account the last close of Playmates shares, of $2.95 or $5.90 a consolidated share, and taking in the new shares, the company says the resultant adjusted pro forma combined net tangible assets of Playmates Group at June 30, 1993 would be $2.34 billion or $1.79 a share, or $3.58 a consolidated share. Wardley Corporate Finance, the adviser to the independent shareholders, points out that under the deal shareholders would be entitled to one Playmates Toys share for every two Playmates International shares or one consolidated share held. After taking into account a number of assumptions, the market capitalisation of Playmates Toys before the deal, on a pro forma basis at June 30, would be $2.23 billion, equivalent to $1.70 a share or $3.40 a consolidated share. On this basis, following the implementation of the proposals, the combined market value of the one consolidated share and the one Playmates Toys share would be $6.26 compared to the closing price of $5.90 per consolidated share,'' Wardley said. The merchant bank advises shareholders to accept the deal.