Omar Effendi may have had a glorious past but what is its future, asks Sherine Abdel-Razek For much of the first half of the 20th century Omar Effendi was the grande dame of Egypt's department stores, attracting well-heeled customers, both local and foreign, and tempting them with a vast array of merchandise displayed in buildings that were themselves architectural landmarks. The early branches, particularly the one on Abdel-Aziz Street designed by Raoul Brandon in 1908, were built, quite simply, to impress. The stores' fortunes, however, took a nosedive in the 1960s following the nationalisation of the group. "Years in state hands," commented one investment banker, "have taken a terrible toll." By the time the government decided to privatise the company in the early 1990s it was suffering the effects of decades of mismanagement and a bloated payroll comprising of largely untrained staff. There were mountains of unsold inventory, sales figures were low and profits elusive. Given the store group's track record, commented the banker, the government will be lucky to sell it at any price -- quite a come-down for a store for which many still feel a residual affection. The problem is, though, that nostalgia doesn't translate into cash. "The company's good will is worthless," said the investment banker. Events this week appeared to underline the conflict between how people feel about the stores and what they are actually worth. Yehia Abdel-Hadi, head of Benzione, one of the state-owned department stores affiliated to the Holding Company for Trade (HCT), filed a complaint with the prosecutor-general accusing the Minister of Investment Mahmoud Mohieddin, and head of the HCT Hadi Fahmi of squandering public funds by trying to sell Omar Effendi at a knock-down price. Abdel-Hadi was selected by Fahmi two months ago, along with the heads of Omar Effendi's other sister companies, to value the store group. After a month they came up with a valuation of LE1.14 billion, close to the figure put on the stores by the Central Auditing Agency in 1999. Two weeks ago they were called into Fahmi's office and allegedly pressed to say that a different valuation technique is better than the one they used. When a discounted cash flow method is used the valuation will be slashed by almost 50 per cent. Abdel-Hadi told reporters that he suspected the move was aimed at nodding through a bid for the stores by the Saudi Anwal Group, which had offered LE504 million for the company. There have been no other bids. The Ministry of Investment issued a press release refuting Abdel-Hadi's accusations. The ministry, it pointed out, is not involved in negotiating with the buyers of public assets; its role is limited to choosing between bids already submitted. The statement also noted that the ministry only accepts valuations by committees that include representatives of the State Council, the Central Auditing Agency, the relevant holding company and the Capital Market Authority, as Law 203 demands. Fahmi's response was to submit a complaint of his own with the prosecutor- general denouncing Abdel-Hadi's accusations as groundless. In addition he held a press conference, attended by all other members of the committee, who affirmed that they had not been unduly pressured into lowering their valuation. Their initial valuation, it was stated, provided a benchmark for the market value of the group's assets should it turn out that land and buildings be sold separately. Fahmi also revealed that negotiations with the Saudi company are on- going and a higher bid has now been submitted. The deal may not be sealed yet but it is certainly making waves. Opposition MP Mustafa Bakri submitted an information request about the deal and accused Mohieddin of selling the country's assets off at a low price. "The value of the land and buildings occupied by only three of Omar Effendi's 82 stores exceeds the LE500 million offered," he said in a TV interview. Omar Effendi has been on the bloc four times before and each time negotiations have collapsed over disagreements over the value of the company. "No details of the deal have been made public yet," said the investment banker, who requested anonymity. "But it sounds to me as if the land is not included in the LE504 million offer." The last time the store was offered for sale the government decided not to include the land, since that would have pushed the asking price too high. Instead, the government would retain title to the land and lease it to the new buyer. "Price is not the major factor here," says Hamdi Rashad, a board member of the HCT until his retirement a couple of weeks ago. "The government is not a trader whose only concern is to secure the highest price. Other considerations play their part. What are the buyers' plans to develop the stores, for instance? And will they retain the workforce?" Privatisation consultant Safwat Bali, chairman of Egypt for Financial Investments, agrees: "we are not in a position to negotiate the price. It is not simply a matter of the company's assets being valued at more than the selling price, you must also factor in the massive problems Omar Effendi's new buyer will have to tackle in turning the stores around." Omar Effendi employs 6,000 people and last year made a profit of just LE2 million after four consecutive years of losses. Bali stresses that the country is in dire need of investments. Despite the increase in foreign investments last year Egypt remains at the bottom of the FDI investment curve. "The economy will not grow unless we increase these investments. Selling is our best bet." No decision had been taken concerning Anwal's offer when Al-Ahram Weekly went to press. A 1998 amendment to Law 203, however, allows the general assemblies of holding companies to accept bids lower than the approved valuations.
