By Una Galani/Dubai
Egypt’s EFG-Hermes is worth a fight. The Middle East’s pre-eminent investment bank has sparked rival interest from Qatar and a consortium of Egyptian financiers, backed by billionaire Naguib Sawiris, despite the allegations of illegal share-dealing levelled against the firm’s two co-chief executives. While reputation is everything in finance, EFG’s diverse business still has value.
The rise of EFG owes something, bankers say, to the connections of co-chief executive Hassan Heikal whose father was close to Egypt’s second president Gamal Abdel Nasser. Doubts created by illegal share dealing charges and links to Hosni Mubarak, whose son Gamal still partly owns the firm’s private equity business, have helped wipe 60% off EFG’s market value since the Arab uprisings began.
The bank has vowed to defend its CEOs.
Overall the investment bank generates 40% of EFG’s total revenues. Yet the pure investment banking business—where relationships matter most - generated just 18% of EFG’s total fee and commission revenue last year. One quarter came from private equity. The rest came from EFG’s brokerage and asset management units which boast an unrivalled regional infrastructure.
A partial buyout - backed by Qatar’s QInvest - offers stability in a region suffering from depressed volumes of business. So it is hardly surprising that the arrangement has won support from management and shareholders, who have now formally approved the Qatari deal.
QInvest offers investors some cash now and the chance to benefit from some upside on the value of the investment banking business over the next three years. EFG investors will continue to own the commercial bank and the private equity business.
A talked-of leveraged buyout from the rival consortium of experienced bankers looks risky by comparison. The potential cash offer for the whole bank offers only a 23% premium to the current price. But the interest underlines the fact that there are good assets.
Whichever acquirer closes a deal can’t afford to be complacent. QInvest could face an exodus of talent if it tries to relocate staff en masse to Doha, for example. There are also plenty of rival regional upstarts. But with careful management, a brand like EFG is still a prize.
CONTEXT NEWS
tEgypt’s EFG-Hermes bank said that its shareholders voted on Sunday to approve a partial buyout backed by Qatar’s QInvest, and that the firm rejected a potential rival cash offer for the entire Cairo-based investment bank from an Egyptian consortium.
t EFG will inject its investment banking businesses into a joint venture controlled 60% by QInvest and 40% owned by EFG. The bank’s private equity business and interest in Credit Libanais will be excluded from the deal.
tQInvest will inject $250mn into the JV and will have the right to buy the remaining 40% between 12 and 36 months after the close of the transaction for whichever is higher; $165mn or a fair market valuation subject to an undisclosed cap. EFG shareholders will receive a one-off dividend of 4 Egyptian pounds per share following the close of the deal.
tA consortium called Planet IB, backed by Egyptian billionaire Naguib Sawiris, said it intends to launch a tender offer at 13.50 Egyptian pounds ($2.23) per share to buy the entire bank and has appealed to the regulator to suspend the QInvest deal long enough to conduct due diligence.
tEFG said in a statement that Planet “did not provide any legal commitment or guarantee” to the bank or its shareholders to conclude a tender offer and “no proof to availability of funds has been presented to the company”.
tShares in EFG closed at 10.99 pounds on Thursday, the last day of Egypt’s trading week.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)