UPDATE 2-PDG buys Agre in $1.4 bln Brazil real estate deal

* PDG Realty agrees to Agre takeover in all-stock deal

* Takeover valued at $1.4 bln based on Monday’s close

* Agre was created in September through mergers
(Adds background on both firms, background on executives)

By Guillermo Parra-Bernal

SAO PAULO, May 3 (BestGrowthStock) – Brazilian real estate
developer PDG Realty (PDGR3.SA: ) agreed on Monday to take over
rival Agre (AGEI3.SA: ) in an all-stock transaction valued at
2.43 billion reais ($1.4 billion), creating the nation’s
largest builder.

The deal underscores PDG’s scale gain after setting focus
on low-income housing, Brazil’s fastest-growing segment of the
housing market. Chairman Gilberto Sayao, a former UBS banker,
is spearheading efforts to expand in Brazil’s northeast and the
state of Sao Paulo, the country’s wealthiest, as the government
extends guarantees to carry out the nation’s most ambitious
housing plan ever.

“The association will result in a more efficient corporate
structure, with a combined land bank that is complementary on a
geographical basis, and a range of products that reaches out to
all social segments,” the companies said.

Merger activity in the Brazilian real estate industry has
been brisk over the past year as developers, who were hammered
by the impact of the credit crunch, beef up their financial
muscle to tap into the government’s $41 billion low-income
housing program and the fastest economic growth in at least 25
years.

PDG will issue 148.5 million new shares to pay for the
acquisition, the companies said in a securities filing.
Shareholders of Agre, the by-product of a merger of three real
estate developers in September last year, will tender one of
their shares for 0.495 shares of PDG Realty.

The combined company will have a market value of 10 billion
reais, according to Thomson Reuters calculations. Launches for
the combined company will rise between 6.5 billion reais and
7.5 billion reais this year, the filing noted.

Brazil’s quick economic recovery has allowed homebuilders
to step up works in projects for the middle- and high-income
segments.

Yet it remains unknown how demand will perform after the
central bank raised borrowing costs in April for the first time
in two years, analysts including Leonardo Zambolin of Goldman
Sachs said.

The value of the deal was based on PDG Realty’s market
close price of 16.45 reais. The stock rose 3.1 percent from the
prior session.

Agre rose for a fourth day, advancing 3.1 percent to 8.15
reais.

TRACK RECORD

PDG, founded by Sayao and his partners at former private
equity fund PCP, has projects in 11 Brazilian states.

Sao Paulo-based Agre counts Spanish real estate investor
Enrique Banuelos among its partners and has ongoing projects in
16 states. Agre, the acronym for Amazon Group Real Estate,
merged last September its Abyara, Klabin Segall and Agra units
into a single company.

Analysts including David Lawant at Itau Securities say PDG
Realty is poised to grow more rapidly than rivals Gafisa
(GFSA3.SA: ) and Cyrela (CYRE3.SA: ) because of its impressive
track record in the low-income housing segment.

PDG was better positioned than most rivals to fund growth
because of its low leverage and 1.1 billion reais in cash at
the end of March, Lawant said in a recent note to clients.

PDG launched about 850 million reais of new projects in the
first quarter, a 79 percent increase from a year ago. It
unloads inventory faster than most rivals in the industry and
its contracted sales have outperformed average industry growth
in recent quarters.

Management at PDG will remain unaltered, the filing said.

Agre executives will stay at PDG Realty for five years and
agreed to a non-compete clause for two years after they step
down.

The deal will still require approval from shareholders of
both Rio de Janeiro-based PDG Realty and Agre, as well as from
clearance by regulators, the companies said.

Investing Basics

($1=1.732 reais)
(Additional reporting by Elzio Barreto and Peter Murphy;
Editing by Bernard Orr and Lincoln Feast)

UPDATE 2-PDG buys Agre in $1.4 bln Brazil real estate deal