Olympic investor bonanza
Olympic Group shares skyrocketed by 40 per cent in one trading session and investors are yet to reap even more, reports Sherine Abdel-Razek
Olympic Group (OG) shareholders could not be happier. Electrolux is currently looking to buy the company in a $480 million deal that values shares at LE45, almost 50 per cent more than the LE30.07 it closed at on 7 October, the last time shares were traded before the offer was announced.
The Swedish company Electrolux said on Monday it had tentatively agreed to pay Paradise Capital LE 45.30 per share for its 52 per cent stake in OG. According to the Egyptian capital market regulations, Electrolux will have to submit an offer to buy the rest of the company at the same price. Listed shares surged during Monday's transactions by 39.72 per cent to close at LE42.
While 52 per cent of OG is owned by Paradise, the remaining stake is a free float, with almost 42 per cent owned by local and foreign institutions leaving only six per cent to retail investors. Both Naeem Holdings and CI Capital advised existing OG shareholders to tender their holdings in the company when Electrolux offered to buy it, as the price exceeds the company's fair value calculated at LE35 by Naeem and LE36.5 by CI Capital.
This is not the first time the two companies are involved in a single deal. Electrolux,the world's second-largest maker of fridges, vacuum cleaners and cookers has had a regional commercial partnership with OG for the last 30 years, allowing it to distribute brands such as Electrolux, AEG, Frigidaire and Zanussi. The move is in line with Electrolux's strategy to relocate more than half of its production to low-cost countries.
The deal "is an implicit move [by Electrolux] into emerging markets and obviously it is good to buy your own agent. You don't need to do any rebranding or anything like that. So you can say it is positive," Swedbank analyst Peter Naslund told Reuters news agency.
CI Capital believes OG, acquired at the 50 per cent premium, is a barometer for Egyptian market growth potential, not only in terms of local demand potential, but also as a low-cost base supplier.
The company was relatively resilient to the effects of the financial crisis, with revenues in 2009 dropping by just three per cent, reaching LE2.1 billion. Moreover, OG plans to upgrade its automatic washing machine plants and to build a new enamelling line in its cookers factory that will help reduce costs, according to a research note issued in April by CI Capital.
OG procures around 50 per cent of components used in manufacturing locally, either from subsidiaries within the group or other local suppliers.
The name of Paradise is a translation of the Arabic word Fardous, the name of the company's founder Niazi Sallam's mother. The company intends to use revenues in buying back two non-core units Btech and Namaa it spun off in early September 2008. Since the deal coincided with the global financial crisis, the majority of Btech's and Namaa's shareholders requested cash instead of shares. As a result, even after the spin-off, OG has retained controlling stakes in both companies.
While officially incorporated in 1995, OG's existence dates back to the 1930s. In 1997 it acquired 79 per cent of the previously state- owned Ideal, and has since maintained a leading position in Egypt's white goods market, with a market share of 30 per cent.