ABDALLA F. HASSAN | Reuters | February 19, 2001

CAIRO, Feb 19 (Reuters) – Egypt’s Orascom Hotel Holdings (OHH) is to acquire parent company Orascom Projects and Touristic Development (OPTD) through a share swap in March, with OPTD’s Gouna Beverage subsidiary spun off in the coming days, the company’s chairman said on Monday.

The acquisition is designed to enhance transparency and eliminate potential conflicts of interest between the OHH and OPTD, said Samih Sawiris, the chairman of both companies.

“We would have a single consolidated balance sheet that effectively illuminates all inter-company transactions.”

OPTD, a tourism developer and contractor, owns 57.4 percent of OHH, an operator of resort villages in Aqaba, Jordan, and Hurghada and Taba on Egypt’s Red Sea coast.

OHH currently has a free float of 32.5 percent while OPTD’s free float is 0.4 percent. The new, combined entity, with a 21.6 percent free float, will be named Orascom Hotel Development.

THE PLAN FOR THE SWAP

OHH will issue 49.92 million new shares valued at 499.2 million pounds to buy all of OPTD’s 38.4 million outstanding shares. Shareholders would get 1.3 OHH shares for each OPTD share.

“The ratio of the exchange is strictly a valuation of OPTD and OHH as a whole – the shares in the market, discounted cash flow, asset valuation. We came to the conclusion that a very fair exchange ratio for a share of OPTD is 1.3 shares of OHH,” said Sawiris.

In March, OHH will make a tender offer for 100 percent of OPTD, during which the swap of shares will take place, he said.

“If you have shares worth 1 million pounds in OPTD, you will get shares worth 1 million pounds in OHH,” Sawiris explained.

A capital increase of up to 700 million pounds has been approved, of which 499.2 million represents the swap. The remainder would be a cash injection from banks, the Sawiris family, and other investors. The equity increase would be completed by the end of April.

GOUNA BEVERAGE SALE

“(The Gouna Beverage Group) has become so big that it does not belong in this new merged company as a subsidiary,” Sawiris said.

The book value of OPTD’s 35 percent stake in Gouna Beverage Group is 95 million pounds, according to company figures. Sawiris places a valuation on OPTD’s stake in Gouna of up to 120 million pounds. El Gouna posted roughly 7 million pounds in profit last year, the company said.

Sawiris said the company would either be sold in whole to Al Ahram Beverages – fortifying its monopoly position in the domestic alcohol market – or he may personally elect to purchase OPTD’s stake in Gouna Beverage.

“I find myself very sentimental in this instance. When I am objective, I say I should sell outright, and when I am sentimental, I say I should buy outright. So I have not made up my mind,” said Sawiris.

“(Al Ahram Beverages) has reached a level of pricing that kills my sentimentality. But if for any reason they do not finalise the deal, then the level they have proposed before leaving the deal is obviously good enough for me. The last offer they refuse is the offer I would take.”

The transaction will be concluded within days, he said.

Launched in April 1999, the Gouna Beverage Group makes Obelisque wines, Sakara beer and is the local producer for Lowenbrau.

Along with OPTD, the Sawiris family and Lebanon’s Debbane family are among the other shareholders.

OPTD shares fell 0.39 of a pound, to 8.84 at the close of Monday’s session on volumes of 1,319 shares. OHH fell 0.32 pound to close at 7.21 with 74,951 shares changing hands.

Al Ahram Beverages ended Sunday’s session at 50.12 pounds. No trades took place on the stock on Monday. Al Ahram’s GDR closed at $12.90 on Monday.

EXPANSION STRATEGY

Shareholders will not be seeing a dividend anytime soon, Sawiris said. “OHH has an ambition business plan that would take away all its cash surpluses.”

Following its acquisition, company debt would total 887 million pounds.

But the larger market capitalisation of the new company will give it a greater potential to finance growth through a GDR or local placement, he said.

He added that currently more than 1,000 units are under construction. The goal is to reach a critical mass of rooms in the resort villages in order to draw serious attention from European tour operators, he said.

“We are selling more units to foreigners, which means that our real estate business is no longer limited to Egyptian real estate market situations, but is quite independent. We have 25 to 35 percent of units sold to foreigners,” he said.

“It increases our revenues in dollars, which buffers us against the exchange-rate risk.” ($1=3.88 Egyptian pounds)