CAIRO: After years of unsuccessful attempts to privatize the retail giant, the board of directors of the Holding Company for Trade finally approved the sale of Omar Effendi to Anwal United Trading Co., a Saudi clothing and apparel retailer. The final approval by the holding company that owns Omar Effendi follows the endorsement of the deal last week by the governmental committee that oversees the sale of state assets. Anwal will pay the government LE 655 million for Omar Effendi in addition to LE 50 million for the early retirement of 1,200 temporary employees and LE 200 million for immediate capital expenditure. Al Ahram newspaper reports that the latter will be used to develop and improve the performance of the company. While committing to the continuation of Omar Effendi s activities, Anwal will be prohibited from selling two branches: the landmark building in downtown Cairo that is considered a national monument and a branch in Alexandria that is under the protection of the city s governor. Anwal will also be obligated to ensure the payment of all of Omar Effendi s liabilities to government authorities in the form of taxes and loans. The final figure is a significant increase from Anwal s initial offer of LE 504 million and follows nine months of negotiations between the government and the new investor. Nevertheless, the price is unlikely to appease the deal s many detractors, including Yehia Abdel-Hadi, the head of Omar Effendi s sister company Benzione, who the led opposition to Anwal s offer. Abdel-Hadi unsuccessfully tried to block the sale in March by lodging a complaint with the attorney-general asserting that the fair value of Omar Effendi is LE 1.14 billion. This claim was rejected by Hadi Fahmi, chairman of the Holding Company for Trade, and Minister of Investment Mahmoud Mohieddin, who placed the company s value closer to LE 600 million. The discrepancy in valuation, according to Fahmi and Mohieddin, was due to the fact that Abdel-Hadi s estimate was based solely on the value of the land and buildings and failed to account for the requirement of continuity of the company s activities. The government based its estimate instead on forecasted discounted cash flows, which is well below Abdel-Hadi s valuation because of the low profitability of Omar Effendi; the company achieved an income of only LE 2 million last year following four consecutive years of losses. As a prelude to the final approval of the deal, the government s method of valuation was approved by the economic committee of the People s Assembly two weeks ago. This is the third attempt to privatize Omar Effendi. Previous bids in 1999 and 2001 failed in part because of the reluctance of investors to take on the payroll of the store s 6,000 employees. Some 1,200 individuals are employed on a temporary basis by the company. These individuals are not accounted for as permanent staff, yet many have been employed for years. Anwal will pay LE 50 million, an average of approximately LE 42,000 per employee, as severance to these temporary workers. Anwal operates over 145 showrooms across Saudi Arabia and represents several international brands, including those of the French clothing company Etam and the Italian apparels maker Furla. The Saudi retailer declined to comment on the acquisition yesterday, citing concerns of misinformation in the press following the outburst of negative coverage associated with Abdel-Hadi s lawsuit earlier this year. Anwal is, however, expected to make a statement next week. Despite the promotion in Europe and the Gulf of the latest attempt to sell Omar Effendi by Commercial International Brokerage Company and National Bank of Egypt, Anwal was the only investor to submit a bid. Three other investors had expressed an interest in participating in the bid and purchased the information memorandum in February, but none of these investors followed through with an offer. The sale of Omar Effendi is arguably the most controversial item in the current government s privatization program. The purchase of Egyptian American Bank, which had a minority stake on the stock exchange, by Calyon earlier this year also generated an outcry from the bank s public shareholders, who claimed the sale price was too low. Such outbursts reflect the public and the local media s distrust of the government s approach to privatization. Despite more than 30 years since President Anwar Sadat instituted his open door policy that sought to reverse President Gamal Abdel-Nasser s socialist, nationalist approach to the economy, state-owned companies still dominate several industries and some citizens still view privatization as a betrayal by the government of its social responsibility. Mohieddin has overseen the complete sale of five state-owned companies since taking office two years ago. In March, the People s Assembly approved a plan to sell another 45 state-owned companies. Total annual profits from state-owned companies under the control of the Ministry of Investment rose from LE 91 million when Mohieddin took office to LE 604 million today.
