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Monday, 8 March 2021

Banque Misr won’t hike its offer price for CI Capital

Banque Misr says it has no plans to hike the price it’s willing to pay to raise its stake in CI Capital to 90%, a source close to the transaction told us, confirming reports made earlier this morning on Al Mal. The story follows a statement by CI Capital saying the offer price was below a valuation reached by its financial advisor. Banque Misr lodged a mandatory tender offer at EGP 4.70 per share that’s currently ongoing and wraps up on Thursday. This is an invitation to shareholders to sell at a set price, and it’s the right of shareholders to sell if they want to, sources said. The offer price is close to a market average determined by several research houses, they added.

Banque Misr reasons that the actual value of the transaction is substantially higher because of an employee ESOP: If the ongoing MTO sees Banque Misr acquire more than 51% of CI Capital, this would trigger a post-acquisition Employee Stock Ownership Plan (ESOP). The ESOP will mean BM will end up paying an additional EGP 212 mn in stock options to CI Capital’s employees as a retention and incentive scheme, the newspaper noted, citing a source. This means that the agreement values CI Capital at the EGP 4.7 bn flat transaction price plus the added EGP 212 mn payout to employees under the ESOP, the source said.

What’s happening here: CI Capital’s board yesterday said in a regulatory filing that BM’s mandatory tender offer price, which values the company at some EGP 4.7 bn, is too low when benchmarked against an independent valuation report. BM currently owns a 24.7% stake in the financial services firm and has lodged an MTO for up to 653 mn more shares to get 90% ownership. The state-owned bank became CI Capital’s largest shareholder last August when it acquired an additional 11% stake.

On the question of what’s a fair price: Sell-side analysts have set target prices for the share in the EGP 5 range, including EGP 5.00 (Pharos), EGP 5.20 (Prime) and EGP 5.47 (HC). The source we spoke to says that the target price is something an investor could believe will happen in the long term, and not necessarily a market value. As things stand, the bank’s offer is a chance for shareholders willing to sell and make a shorter-term gain.

Still, CI Capital is asking for more: The firm is asking for EGP 5.60 per share, 19% higher than Banque Misr’s current bid. This is based on a fair value report by its financial advisor, Baker-Tilly Wahid Abdel Ghaffar & Co, which priced the company’s shares at EGP 5.60 apiece in case of snapping up more than 51% of shares, and at EGP 5.73 if buying up to 51%, valuing the firm anywhere between EGP 5.6-5.73 bn. Banque Misr has previously resisted market pressure to bump up its offer.

Does this mean the acquisition could be called off? MTOs are considered successful if more than 51% of the targeted shares subscribe to the offer price. But a bidder has the right to ask for the FRA’s approval and snap up less shares through the MTO, meaning BM could still end up raising its ownership stake by buying out certain shareholders in CI Capital even if the latter’s board objects to the MTO price.

Would Banque Misr look at another target? The source refused to comment on whether an unsuccessful MTO would lead BM to turn away from the bid altogether and declined to comment on any future or alternative plans to acquire another investment bank.

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