After six months the Egyptian American Bank has been sold. The deal, though, was not without its hiccups, reports Sherine Abdel-Razek French-based Calyon Bank's offer to buy a majority stake in the Egyptian American Bank (EAB) was approved on Sunday by the Central Bank of Egypt marking the end of 10 days of increasingly vociferous criticism as members of parliament argued that the price offered by Calyon undervalued EAB and that the sale could itself be unconstitutional. Calyon had offered LE45 per share, 15 per cent less than the then price on the stock exchange. Independent MP Mustafa Bakri claimed the sale was unconstitutional because two members of the government -- Minister of Transport Mohamed Mansour and Minister of Housing Ahmed El-Maghrabi -- were effectively part owners of Calyon, being members of its board. Bakri cited Article 158 of the constitution, which states that members of the cabinet are prohibited from buying or renting property of the state. While El-Maghrabi and Mansour said in response they had resigned from Calyon's board soon after being appointed to their new cabinet positions the apparent conflict of interest fuelled speculation that the decisions of the new government were favouring its business members. Amid the heated exchanges, both in print and on air, the Ministry of Investment, CBE and Bank of Alexandria (BA), a major shareholder in EAB, issued a joint press release detailing the steps taken since it was first announced that EAB would be sold six months ago. By the end of last week financial analysts were holding their breath as they awaited CBE approval of the deal. Any delay in the CBE's decision, believed many, would undermine confidence in plans to revitalise Egypt's banking sector which include the long-awaited privatisation of the first public sector bank, BA, and the sale of government holdings in banks including CIB and Misr Romanian Bank. So tense was the atmosphere that financial sector analysts refused to be quoted in the press and none of the six investment banks contacted by Al-Ahram Weekly for comment on the share price proved willing to venture an opinion. One analyst, requesting anonymity, said the price offered was much lower than investment house projections, which had valued EAB shares at between LE55-70, and that the BA might have rushed the deal in order to realise the profits needed to support its own balance sheet before next month's floatation. The BA will raise LE1.1 billion in profit by selling its stake which has a book value of less than LE100 million. Market traders, anticipating a share price of more than LE55, were wrong-footed by the final offer. On the back of speculation EAB shares were pushed above LE60 by November last year. In a TV interview broadcast on Saturday BA Chairman Mahmoud Abdel-Latif was blunt in refuting allegations that the deal had been rushed. "EAB's share price had increased by 20 per cent in the last six months without any serious development in the bank's management or results. The increase was based on nothing more than speculation, and cannot be taken into the fair price evaluation." The joint press release explained that the final price was determined after a lengthy evaluation process. BA, in cooperation with the vendor's financial consultant Credit Suisse, decided on a fair value for EAB shares which was then submitted to the five- member committee charged with approving valuations of state-held shares in public financial entities. The committee is chaired by the vice-president of the State Council and comprises representatives from the Ministry of Finance, the Central Audit Authority, CBE, the Capital Market Authority and the Association of Auditors and Accountants. The committee concluded that LE45 was the minimum value per share. The two interested buyers, Calyon and HSBC, were then asked to submit their offers which were studied by another committee comprising representatives of BOA, American Express Bank, the Ministry of Finance and CBE. Calyon's offer was eventually chosen. "Share price was not the only criteria in choosing among the offers. The buyers' future plans for EAB and their ability to protect the rights of EAB's current employees were also taken into account," said Abdel-Latif. HSBC, he continued, had offered LE31 per share while Calyon offered LE48. Calyon's offer did not, however, cover liabilities accrued by the employees' fund. In order to cover the fund's LE324 million deficit a deal was struck involving an amended offer of LE45 in exchange for which Calyon agreed to cover the deficit, thereby guaranteeing the acquired rights of pensioners and the pension rights of current employees prior to the liquidation of EAB's in-house fund, a prerequisite of the sale that will come into effect when the acquisition is formalised. Now that CBE approval has put an end to worries about the deal, Calyon is expected to submit a tender to buy the remaining shares in EAB pending the approval of the Capital Market Authority.
