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Alex Cement shareholders at
loggerheads
On
April 4, the management of the Alexandria Portland Cement Company (APCC)
tried to hold the company’s annual general meeting (AGM) at an
Alexandria hotel. Until, that is, shouts of “Long live Egypt” rang
out from the minority shareholders packed into the room, at which
point the meeting was clearly doomed.
Minority
shareholders were furious that no dividends were being distributed and
refused to accept the management’s decisions.
These
shareholders – individuals, mutual funds and institutions that hold
a total of 24 percent of the company’s shares – are angry over
APCC’s poor performance since the government sold its majority stake
in the company to British cement firm Blue Circle Plc. three years
ago. “Foreigners are always saying that the investment environment
here in Egypt is not suitable,” said Ahmed Farghaly, a portfolio
manager for some of the shareholders. “But they, the foreigners, are
the ones who make it unsuitable.”
APCC
administrators, however, said that everyone at the company was having
a tough time, Egyptians and foreigners alike. “No one, not even the
majority shareholders, received any dividends this year, because the
company posted a loss,” said Anthony K. Muckley, managing director
of APCC.
Adding
to the aggravation, Alexandria Development Company (wholly owned by
Blue Circle Plc., which was itself recently taken over by France’s
LaFarge Cement) has been trying to buy out the minority shareholders,
but at a much lower price than it paid to the government in 1999.
Since the majority stake – 76 percent of the shares in APCC – was
purchased by Blue Circle in 1999, the company’s stock values have
dropped by more than half. And although Blue Circle paid the
government £E 80 per share, its affiliate proposed this year to pay
the minority shareholders less than £E 20 per share.
In
January, a free-float bid for the minority shares was offered by
Alexandria Development Company at £E 19.50 a share. Responding to
shareholders’ complaints, the Capital Markets Authority (CMA)
undertook an
investigation.
No
wrongdoing was found, and the bid offer was resumed at £E 30 per
share – a compromise level suggested by the CMA. At the same time,
the company posted recent results that would seem to support its
position. For the first nine months of 2001, the company posted a net
loss of £E 17.44 million, compared to a net profit of £E 6.04
million for the same period in 2000.
The
minority shareholders at the meeting were not satisfied that the
company’s fortunes had turned so bad. “What the management has
done is to make the balance sheet appear to indicate a loss,”
Farghaly said. “If you read the report from the company’s
administration, they are talking about a cement sector that is very
bad and filled with losses, but that simply is not true.”
At
the time the majority stake was sold to Blue Circle, a new production
line was already under construction, but it was far from complete.
Farghaly said the fifth line, now ready for production, would boost
revenues, because it can produce more than the other four lines
combined. He and other shareholders contend that the company’s
shares should therefore be priced higher. “How,” he asked,
“could shares be bought at £E 80 when only 40 percent of the fifth
line was built, and now – with the fifth line completed – what has
been offered is £E 19 a share, and then
£E 30?”
Officials
from APCC insisted that the poor state of the economy had contributed
to the company’s poor performance. “The cement sector has changed
dramatically over the past three years,” said Salem Sousou, finance
director for APCC. “Prices have come down
dramatically.”
Rasha
Husseiny, a cement-sector analyst at CIBC, confirmed that the industry
as a whole had been performing poorly over the past couple of years,
and that this had been reflected in stock prices throughout the
sector.
Sousou was adamant that the company has acted responsibly
towards all shareholders. “If they believe they have been treated
unjustly, they can appeal to the law and the people who protect
shareholders, such as the CMA,” he said. And that is what the minority shareholders have
done. On April 10, a meeting took place between shareholder representatives
and the CMA in Cairo. Farghaly said the CMA was very receptive to the
minority shareholders’ complaints. “We asked the CMA to not execute
this bid offer until we had examined the balance sheets and made
any amendments,” he said. “And of course, the most important thing
for us is the dividends, for which we would like to get £E 5 to
£E 10 per share.”
After the meeting with the CMA, the bid offer was
again postponed. An article in Al Alam Al Youm on April 16
said that the CMA was investigating shareholders’ complaints, but
no time frame was given for when the results of the investigation
would be made public. M. SCOTT
BORTOT
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