In the ongoing struggle for control of Egypt’s largest investment bank, all options appear to be on the table for Planet IB, the consortium seeking to take over EFG- Hermes. Planet appears to be forging ahead with its plans to acquire EFG despite shareholders approving a tie-up with Qatar’s Qinvest last week.
One scenario could see Planet IB move towards a hostile takeover of EFG-Hermes with Planet’s CEO Ahmed al-Hussainy saying he wouldn’t “shy away from Egypt’s first hostile takeover” according to Bloomberg. Given EFG’s high free float rate -- thought to be approximately 65% -- a potential buyer could purchase those shares on the open market. Buying or selling would be up to the individual investors and if Planet made an attractive offer, they could be compelled to sell.
Al Arabiya has also learnt that Planet is pursuing another route which involves garnering support of investors owing 5% of EFG shares and submitting an objection to Egypt’s financial regulator requesting a suspension of the company’s decision to green-light the Qatar deal.
Planet has disclosed in statements that it already owns EFG shares -- although it does not state how much -- a factor that could potentially have a bearing on its course of action.
The back and forth between EFG and Planet appeared to reach a stalemate earlier this week when EFG’s chairperson told Al Arabiya TV that going back on the Qatari deal would “open the gates of hell” saying it was not possible for EFG to open its books for due diligence as requested by Planet IB because the bank’s shareholders had already voted at their general meeting in Cairo on June 2 to go ahead with a planned partnership with Qinvest, a unit of Qatar’s Islamic Bank.
“Right now it is not possible to open our books for due diligence now that we have signed the agreement with Qinvest and the extraordinary general meeting approved this offer,” Mona Zulficar, chairperson of EFG-Hermes’s board told Al Arabiya. “Legally, we cannot take a decision on this issue. It is against the law to enter into negotiations with a different party,” she said.
For its part, Planet IB contends it cannot submit an official buy offer without doing due diligence on EFG’s accounts and legal status. In a statement, Planet called for “an immediate opportunity to submit its offer” and asked for approval to carry out the necessary due diligence.
The process of due diligence is carried out by a buyer to evaluate a target company and its assets in an acquisition and in EFG’s case, is of particular importance given recent allegations of ties between the bank’s senior executives and the Mubarak family. On May 30th Egypt’s public prosecutor brought charges of stock market fraud against EFG’s two CEOs Yasser al-Mallawany and Hassan Heikal, along with Mubarak’s two sons Gamal and Alaa and five other businessmen.
The nine men are accused of illicit gains to the tune of LE 2 billion ($300 million) from transactions carried out on shares of shares of Egypt’s Watany bank dating back to 2006 and 2007. EFG released a statement distancing itself from the Mubarak family and confirming its executives had “no personal dealings, interests or benefits” relating to the alleged stock manipulations, but Planet IB wants to have a look at EFG’s books before making a formal offer.
The latest developments come after an eventful week. In a surprise move, and on the eve of a crucial vote by EFG shareholders on an alliance with Qinvest, a group of Egyptian and Arab investors operating under the Planet IB consortium announced their intention to buy 100% of EFG-Hermes, offering a minimum price of LE13.5 per share.
Planet’s offer valued EFG-Hermes at more than $1 billion according to Bloomberg estimates and represented a 23% premium on share’s last closing price.
Since then the bank’s shareholders have voted in favor of the strategic partnership with Qinvest; Planet IB has launched a media campaign to win over EFG shareholders and Egyptian public opinion and EFG has chided Planet publicly for not providing legal commitments, proof of funding or revealing the identity of its backers. EFG also announced it is taking legal action to protect itself from what it described as Planet’s “aggressive media campaign.”
EFG’s chairperson Zulficar told Al Arabiya that Planet IB hadn’t submitted an official offer to the bank’s board, but rather only a couple letters of intent. She added that Planet was “late” because it approached EFG after the Qinvest partnership had been announced, citing three different occasions since March of this year when talks between EFG and Qinvest were made public.
According to Zulficar, Planet IB has the right to present its purchase offer to Egyptian Financial Supervisory Authority EFSA without approval from EFG shareholders. She said the ultimate decisions rests with the shareholders who may accept the offer by selling their shares or reject the offer by refusing to sell their shares.
In response to conflicting reports that Egyptian businessman Naguib Sawiris was backing Planet’s bid for EFG-Hermes, Zulficar said: “Naguib Sawiris told me himself that his involvement in the consortium with Planet was contingent upon EFG’s general meeting rejecting Qinvest’s offer.” She said that 88% of shareholders present at the general meeting had approved the Qatari deal.
The partnership with Qinvest would see the transfer of a number of EFG assets and businesses representing 20% of group’s revenue into a new entity called ‘EFG-Hermes Qatar’. The Qatari firm would hold 60% of the new company’s capital with an investment of $250m and EFG-Hermes would own 40%, while retaining the option of selling the remainder of its stake to Qinvest at a later date.
This has led some market observers to interpret the deal as the end of EFG-Hermes in its current form, with some expecting Qinvest to eventually take over EFG entirely.
Planet IB argued in its appeal to shareholders and public opinion, that its offer would keep one of Egypt’s prime financial entities intact. “The proposed acquisition keeps a flagship Egyptian multinational intact and prevents its breakup,” Houssieny, Chief Executive Officer of Planet IB said in a statement.
Planet Investment’s Chairman, Mahmoud Adel Latif, described EFG-Hermes as a “jewel investment” and said their offer is to buy 100% of the company, including all its divisions and its Lebanese subsidiary.
EFG-Hermes is the Arab region’s largest investment bank with a market capitalization of $870m and more than 1000 employees across 9 countries. Planet says it wants to expand the group’s services and products to better suit the needs of Egypt’s economy in transition.
EFG’s Zulficar told Al Arabiya the company did not have a bias towards any particular investor and that if Planet submitted a tender offer to the regulator that was in the interest of shareholders, it would be up to the shareholders to refuse or accept.
As of publication, Planet IB had not yet submitted a formal acquisition offer to the relevant authorities.
(Carina Kamel is a Senior Correspondent for Al Arabiya based in London and can be followed on twitter @carina_bn)