The successful bidder for EFG-Hermes risks overpaying for the Egyptian company, bankers say.
The embattled Egyptian investment bank is caught between two rival bids - the first from a joint venture with QInvest that would provide funding from Qatar's sovereign wealth fund, and the second a US$1 billion (Dh3.67bn) unsolicited buyout bid from Planet Investment Banking (Planet IB), a consortium of Arab investors.
"If Planet are serious about going hostile with their bid, they'll have to considerably increase their price," said Aybek Islamov, a financial analyst at HSBC. EFG-Hermes's business includes investment banking, brokerage and private equity alongside a 65 per cent stake in Credit Libanais, a Lebanese commercial lender.
The Egyptian bank's shares have lost 78.7 per cent of their value since topping out at 50.16 Egyptian pounds in 2008. Investment bankers said that EFG-Hermes offered little value to either potential buyer.
"It's not exactly the marriage of the Rothschilds and the Rockefellers," said one investment banker, speaking on condition of anonymity. "I'm not sure it's such a good deal for shareholders of QInvest to buy a bank which is financially and politically distressed."
QInvest and EFG-Hermes said last month that they had entered into a joint venture to create a new firm, EFG-Hermes Qatar. EFG-Hermes shareholders voted in favour of the QInvest deal on Saturday. Planet IB has said it will appeal the decision with regulators because it has not been given a fair chance to compete. EFG-Hermes says, in turn, it will take legal action to protect its shareholders.
QInvest is controlled by the Qatar Investment Authority, the Qatari sovereign wealth fund.
The investment bank plans to inject $250 million into the new company and would own 60 per cent of its shares, with the remainder held by EFG-Hermes.
QInvest would have an option to acquire the remaining shares 12 months after a deal was struck. Credit Libanais and EFG-Hermes's private-equity businesses are not included in the deal. The minimum bidding price of 13.5 Egyptian pounds per share is 26.4 per cent above the bank's closing price of 10.68 pounds per share yesterday.
If QInvest's bid is successful, the remainder of EFG-Hermes will generate a net profit of 372m Egyptian pounds this year, 35 per cent less than HSBC's previous earnings estimate for the year before the bid was announced. Credit Libanais would become the biggest revenue generator for EFG-Hermes, contributing about 90 per cent of sales, HSBC estimates. But with Egypt's economy deteriorating, political concerns have mounted around the investment bank. The co-chief executives of EFG-Hermes, along with the bank's former chief executive and four others were named last week in illicit-profiteering charges related to the sale of Al Watany Bank in 2007, in a suit that also named Gamal and Alaa Mubarak, sons of the former Egyptian president Hosni Mubarak.
Investors who bought at the peak may see more value in the QInvest bid as an attempt to rebuild the bank's regional clout after a battering by the financial crisis and the Arab Spring.
"This company used to be a $5bn company at one point," said one banker close to the deal. "If you think about the future of the company, they're lucky they've got this activity on the stock.
"Not a lot of people on this planet would be making a bid right now for a company in Egypt, at least not until things have been settled."
The Abu Dhabi Investment Authority and Dubai Financial Group, an arm of Dubai Holding, own about a quarter of EFG-Hermes's stock.