Electrolux bets on growth in post-revolution Egypt

Reuters, Tuesday 12 Jul 2011

Sweden's Electrolux said on Monday it expected Egypt's economy, hit hard by the protests that toppled president Hosni Mubarak, would return to its pre-uprising growth levels within 18 to 24 months


Electrolux signed a 2.4 billion Egyptian pound ($403 million) all-cash deal on Sunday to acquire a majority stake in Egyptian appliance maker Olympic Group , the fate of which could influence broader investor sentiment towards Egypt.

Foreigners pulled money out of the Egyptian financial market and treasury bills following Mubarak's overthrow, contributing to a 4.2 percent drop in gross domestic product in the first quarter.

Egypt's economy had been expanding at about 6 percent annually before the uprising.

Asked when he expected recovery to take place in the Egyptian market, Keith McLoughlin, President and Chief Executive of Electrolux, told Reuters at a conference in Cairo: "We think it's 18-24 months."

The deal with Olympic was tentatively agreed last October and valued at 2.7 billion pounds for 60 million shares outstanding, but was delayed several times by the political turmoil in Egypt.

Electrolux bought the 52 percent stake that Olympic's parent firm Paradise Capital owned.

Electrolux said on Sunday it would offer 40.60 pounds per share and expected the deal to be completed by late July or early August.

Olympic's shares closed up 6.8 percent on Monday after the announcement of the deal. Its shares soared as much as 10 percent in early trade.

"We think there will be some turbulence, some bumps on the road, as the constitution gets established, as parliamentary and presidential elections occur. We think that's natural in the formation of democracy," McLoughlin told reporters in Cairo.

Egypt's ruling military council has set parliamentary elections for September and presidential polls by year-end.

"(In terms of) where the country's going, the demographics, the growth, the increase in middle-class ... we think the future's bright and now is exactly the right time to make this decision, this acquisition," he said.

Electrolux will pay a yearly management fee of 2.5 percent of Olympic's sales to Paradise for seven years.


McLoughlin told Reuters he expected Electrolux to consolidate earnings from Olympic from the third quarter and that the deal would boost Electrolux profits after one year.

"We see this being EPS (earnings per share) accretive in year one, after the first full year," he said.

Asked about payment terms, Hossam Mestikawi, Olympic's Chief Financial Officer, told Reuters: "It's a cash deal, they're acquiring from the market ... buying 100 percent of the firm."

Mestikawi said Electrolux would help Olympic expand into new geographic markets, particularly Europe.

"There could be a chance for some places in Europe. We will build on (Electrolux's) marketing power," Mestikawi said, adding there would be no major changes to the executive management at Olympic for at least the five coming years.

Saad el-Din Abdullah Sallam, chairman of Paradise Capital, said he expected the deal to create more job opportunities in Egypt. He said Paradise hoped to increase the number of people it employed from 15,000 to 80,000 by 2020.

Electrolux said it would sell Olympic's ownership in associated firms Namaa Real Estate Development and B-Tech for Trade and Distribution to Paradise after the deal closes.

Paradise Capital said on Monday it was ready to receive offers to buy B-Tech and Namaa.

"(We promise that) these stocks (will) remain on the bourse except if they are compulsorily de-listed," said Samer Sallam, CEO of Paradise Capital. "Secondly, if anyone presents a higher price, they are more than welcome."

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