Egyptian financial groups EFG-Hermes and Commercial International Investment Company (CIIC) are in talks about a possible strategic alliance.
Analysts welcomed the news that EFG-Hermes and CIIC are negotiating closer ties, saying the move could boost their performance and strengthen their ability to expand abroad.
“EFG-Hermes Holding Company SAE announced today that it is involved in serious negotiations with Commercial International Investment Company regarding the creation of a strategic alliance,” an EFG-Hermes press release said. It said the alliance would increase the financial and investment services on offer while expanding in the Middle East.
“The creation of this alliance will occur through the subscription of each of the companies in the other's capital increase. Proprietary investment activities will be managed by CIIC while investment banking activities shall be managed by EFG-Hermes,” the press release added.
Specific details such as the size of the capital increase were not immediately available. Sources close to the two companies said EFG-Hermes currently managed funds worth some two billion Egyptian pounds ($514 million) and CIIC holds and manages a $500-million equity portfolio.
Alliance and merger
A source close to the negotiations said the talks were proceeding on two levels. One track focused on the strategic alliance between the two holding companies, and another sought to effectively merge the groups' investment banking divisions. “The investment banking arms will be consolidated under one umbrella,” the source sias.
EFG-Hermes is currently 20% owned by Citigroup and 35% owned by staff. The remainder of the shares were floated on the stock exchange. EFG-Hermes shares ended the maximum five percent higher at 6.94 Egyptian pounds, while the broad CIBC index was up only 0.5%.
CIIC is owned by a group of banks including Egypt's Commercial International Bank and businessmen, and some shares are freely floated. Exact ownership details were not immediately available.
Its investment banking arm, called Fleming CIIC, is 50%-owned by CIIC, 25% by Egyptian business group Fleming-Mansour Holdings and 25% by JP Morgan Chase & Co's Robert Fleming & Co.
Analysts welcome news
Analysts said the alliance was good news for both firms, and would probably stimulate the banking sector as well as shares. “EFG-Hermes is the largest financial institution in Egypt, apart from banks, and (the alliance) would give it another push forward. This expansion will help them penetrate the Arab world and become (more of a) regional player,” concluded Amr al-Alfy, banking analyst at CIBC.
“[The alliance] will have the most muscle in Egypt and regionally and this will help its expansion plans,” said Nashwa Saleh, financial analyst at HC Brokerage.
Some analysts said the merger would also be a good start towards consolidation of Egypt's financial sector. “In Egypt, we need more of these mergers in the financial industry because it is so fragmented,” said Alfy, referring to the profusion of small and medium-sized banks and other financial institutions in the local market.
This article was first published by Reuters on 14 June 2001.