First Abu Dhabi Bank wants EFG Hermes: First Abu Dhabi Bank (FAB) has offered to buy a majority stake in leading financial services corporation EFG Hermes in an all-cash acquisition that values it at EGP 18.5 bn (c. USD 1.2 bn), the Emirati bank announced in a disclosure (pdf) to the ADX yesterday. FAB said it submitted a non-binding offer for a minimum 51% stake in the financial institution for EGP 19.00 a share. Bloomberg and Reuters both have the story, which is getting a lot of buzz in the international business press.

The offer is priced at a 21% premium to EFG’s closing share price on Tuesday, representing “an attractive liquidity event and a compelling value proposition” for the bank’s shareholders, which include French bank Natixis and Emirati investment firm RA MENA Holdings, FAB said.

EFG’s share price surged on the news, gaining 9.3% on the EGX yesterday to close at EGP 17.20. The bank’s LSE-listed global depository receipts climbed 17.3%.

FAB’s offer reflects a growing interest in the Egyptian market among Gulf companies, Radwa El Swaify, head of research at Al Ahly Pharos, told Hapi Journal. This includes FAB, which purchased Bank Audi Egypt last year, making it one of Egypt’s largest foreign banks in terms of assets. Bahrain’s Bank ABC acquired Blom Bank’s Egypt arm last August.

EFG’s one-time suitor Naguib Sawiris also praised the move: The offer will likely have a positive impact on the EGX’s performance and could be a boon for the country’s investment climate, Naguib Sawiris told Hapi Journal.

What’s next? “The completion of the transaction and the final purchase price is conditional upon the completion of a satisfactory comprehensive due diligence on the company, and the receipt of the required regulatory approvals,” EFG said in a disclosure to the EGX (pdf) and the London Stock Exchange. FAB has formally notified the Financial Regulatory Authority (FRA) of its offer, the regulator said yesterday in a disclosure (pdf).

Following due diligence, a mandatory tender offer will be made to EFG shareholders, in line with EGX regulations, the FRA statement said.

EFG to continue operating independently, say sources: FAB wants to keep the bank independent, Reuters quoted sources it says has knowledge of the matter as saying. FAB’s statement stressed “the outstanding reputation of EFG Hermes in regional and international markets and recognizes its strong management team, high standards of corporate governance, and strong brand equity. The offer also views the employees of the company as a vital component of the organization’s ability to compete and succeed,” EFG said in its statement.

FAB wants to expand regional presence: The bank has “long term strategic ambitions to become the reference institution for investment banking in the region,” FAB said in its statement, adding that the potential transaction “provides enhanced scale, specialization, growth levers and revenue synergies, strengthening FAB’s offering and regional presence.”

The offer comes on the back of solid earnings and operational achievements by EFG: The group’s net income rose 26% y-o-y to EGP 1.1 bn in during the first nine months of 2021, and revenues were up 8% y-o-y to EGP 4.0 bn, while growth of group operating expenses was controlled, inching down 1% y-o-y to EGP 2.5 bn in 9M2021. The leading financial institution also acquired a 51% stake in Arab Investment Bank in November, officially becoming a universal bank.

Advisors: Rothschild & Co is advising FAB on the transaction, Reuters quoted unidentified sources as saying. Matouk Bassiouny & Hennawy are local legal advisors to FAB, the Emirati bank’s FRA’s filing said.