EFG-Hermes Rejects $1.1 Billion Bid in Favor of Venture

EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, rejected a 6.5 billion-Egyptian pound ($1.1 billion) bid from a group backed by billionaire Naguib Sawiris in favor of setting up a venture with Qatar’s QInvest LLC.

Planet IB Ltd.’s 13.5 pounds-a-share offer, or 23 percent more than the stock’s May 31 close, lacked details on the “financing resources” as well as information about the investors, Cairo-based EFG-Hermes said today. The shares rose 0.4 percent to 11.01 at the close of trading in the Egyptian capital, taking their gains this year to 10 percent.

EFG-Hermes, which operates in countries including Egypt, Saudi Arabia and the United Arab Emirates, would extend its reach to Turkey and as far as southeast Asia through the venture, which still needs regulatory approval. Planet IB Chief Executive Officer Ahmed El Houssieny may now pursue a hostile bid if management refuses to allow him to conduct due diligence.

Planet IB is “offering a hefty premium over the current market prices, which as shareholders we will be willing to look at,” said Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder Investment Management, which owns EFG-Hermes shares. “However, unfortunately the deal remains quite ambiguous and we still don’t have full certainty whether the funds are available for a potential bid.”

One-Time Dividend

EFG-Hermes shareholders yesterday backed an agreement that would give QInvest, a unit of Qatar Islamic Bank, 60 percent of the venture. EFG-Hermes’s private-equity business and its stake in Lebanese commercial bank Credit Libanais SAL aren’t part of the deal. Investors will receive a one-time cash dividend of about 4 pounds a share, the bank said today.

Planet IB’s offer didn’t provide a commitment that a bid will be presented after due diligence, EFG-Hermes said. Shareholders present at yesterday’s vote included Dubai Financial Group and the Abu Dhabi Investment Authority, the emirate’s sovereign wealth fund, it said.

“I will not shy away from Egypt’s first hostile takeover,” El Houssieny said yesterday in a statement to Bloomberg. “I have done Egypt’s first corporate bond issuance, Egypt’s first leveraged buyout, Egypt’s first securitization transaction.”

‘Great Valuation’

EFG-Hermes will have the right to sell its 40 percent stake to QInvest in the 12 months to 36 months from signing of the transaction at a price of 1 billion pounds, it said May 8. QInvest also retains the right to buy its partner’s stake in the same period at the higher price of $165 million or the “fair market value at the time of the exercise, subject to a cap.”

QInvest has said it will invest $250 million in the venture. The units being transferred into the venture with QInvest were valued at 700.5 million pounds by accounting firm Grant Thornton, EFG-Hermes said May 30.

“We are getting a great valuation of the investment banking franchise,” said Schroder’s Sidani. The agreement on the remaining 40 percent stake in the joint venture will help shareholders “capture part of the upside,” he said, should investment banking activities in Egypt rebound from a slump that followed last year’s uprising.

Debt Funding

Planet IB said May 31 it secured $650 million in debt and “substantial equity commitments” from domestic, regional and international investors, including a member of the ruling family of Sharjah in the United Arab Emirates. El Houssieny, former managing director at Cairo-based private-equity firm Citadel Capital SAE, said the offer hinged on EFG-Hermes’s management allowing his company to conduct due diligence.

“If EFG-Hermes is serious about entertaining a tender offer from Planet IB, it must immediately postpone the execution of the alternative transaction,” Planet IB said in yesterday’s statement.

The agreement with QInvest requires regulatory approval. Ashraf El Sharkawy, chairman of the Egyptian Financial Supervisory Authority, wasn’t available for comment when contacted by Bloomberg News in Cairo today.

Planet IB sent a letter today to the markets regulator, Nasr El Din El Houssieny, a director at the company, said by phone. He declined to elaborate.

EFG-Hermes’ co-chief executive officers were referred to trial in Egypt May 30, charged with illicit gains related to the 2007 sale of El Watany Bank of Egypt. EFG-Hermes has denied the charges, which centered on the lack of disclosure of trading activities and involved seven others including Alaa and Gamal Mubarak, the sons of former president Hosni Mubarak.

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