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Monday, 13 December 2021

Ezz Steel to acquire Abou Hashima’s stake in Egyptian Steel

Ezz Steel is moving forward with its bid to acquire Ahmed Abou Hashima’s 18% stake in Egyptian Steel, announcing yesterday in an EGX filing (pdf) that it has offered to purchase the shares in a transaction that would value the company at almost EGP 14 bn. The steel giant’s board of directors has approved the purchase of the stake through its subsidiary Al Ezz Dekheila Steel, which will pay EGP 2.5 bn for the shares in an all-cash transaction. Abou Hashima, who founded the company and currently acts as its CEO and chairman, will accept the offer and step down from the company, Sarie Eldin & Partners, which is providing counsel to Egyptian Steel, told Enterprise.

An ex-steel magnate: The move will see Ahmed Abou Hashima sell down his remaining shares in the company he founded back in 2010. The entrepreneur had invested USD 1 bn into the company and gained a sizable share of the local steel market, but in late 2017 sold an 82% stake to the military's National Service Projects Organization. Enterprise was not able to reach an Egyptian Steel representative for comment on the offer.

The valuation: A fair value study (pdf) carried out by financial advisors Eagle Advisors valued Egyptian Steel shares at EGP 1,193 apiece, which was approved by Ezz Steel’s board. Ezz released the study yesterday as part of its regulatory filing.

What might we expect from Ezz Steel post-acquisition? The transaction would allow Ezz to influence Egyptian Steel’s product mix to focus more specifically on fulfilling unmet market demand, former Holding Company for Metallurgical Industries chairman Medhat Nafie told Kelma Akhira’s Lamees El Hadidi. Nafie expects Ezz Steel to double down on manufacturing pellets and steel bars, and sees potential for the company to increase its output of downstream products, which have a greater value added. The acquisition could also help Ezz widen its distribution network through the integration of Ezz Steel’s infrastructure — and potentially help the company cut freight costs to get its products to areas including Upper Egypt, Nafie said (watch, runtime: 11:57).

The acquisition bid comes as Ezz Steel — MENA’s largest steel company — is on an earnings streak in 2021, after being in the red for most of the previous decade. The company posted (pdf) a net income of EGP 3.76 bn during the first nine months of the year, flipping from a net loss of EGP 4.1 bn last year. The company’s single largest shareholder is founder Ahmed Ezz, who owns a 65.7% controlling stake in Ezz Steel, after recently purchasing a 33.4% stake in the company from El Ezz Group Holding for Industry and Investment. The company holds a market share of around 42%, according to recent figures cited by late night talkshow queen Lamees El Hadidi (watch, runtime: 2:15) last night.

What’s next: The transaction is in its final stages and will be finalized in the coming days, said Amira Sherif, senior partner at Sarie Eldin & Partners and head of the firm’s banking and finance unit.

ADVISORS: Sarie Eldin & Partners are sell-side legal advisors, with Rizkana & Partners acting as buy-side counsel. Eagle Advisors conducted the fair value study, while Moore Egypt served as the auditor.

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