Egypt’s Financial Regulatory Authority (FRA) approved, on Tuesday, a mandatory tender offer (MTO) from HeidelbergCement France to acquire the Suez Cement Group at EGP 7.50/share.
HeidelbergCement intends to acquire up to 59,791,124 shares, the equivalent of 32.878% of the issued capital of Suez Cement.
The FRA also approved a MTO submitted by Suez Cement, which is 55.08% owned by HeidelbergCement, to acquire 100% of its subsidiary Tourah Portland Cement at EGP 7.18/share.
The targeted shares are 100% complementary to HeidelbergCement’s stake in Tourah Portland.
The MTO period is expected to commence immediately, and is likely to remain open for four weeks, with the offer price implying an enterprise valuation of EGP 450/tonne ($29) for Suez Cement.
Naeem Research sees that a steep 80% discount will occur against replacement costs. The deal is also a clear reflection of the distressed state of Egypt’s cement industry, which is plagued by industry-wide oversupplies of as much as 45%. It added that most local producers, including SUCE and TORA, have been unable to break even for years.
“Nevertheless, while our hope was that the offer price could have been a bit more generous to the minority shareholders of both Suez Cement and Tourah Portland, their bargaining power remains weak, given the uncertain earnings visibility represented by the underlying assets,” Naeem Research said.
Suez Cement is expected to operate at 50% of its capacity during 2020, and has been in talks to settle debts worth $125m during the year. As part of this, it is eyeing the sale of its Kuwaiti subsidiary, Al-Helal Cement.