EFG Hermes, one of the largest investment banks in the Middle East, plans to cut costs, sell non-core assets, and return cash to shareholders after a planned tie-up with Qatar's QInvest failed on Wednesday.
EFG had agreed the deal in May last year to spin-off part of its assets to create an investment bank with operations spanning the Middle East, Africa and Turkey. QInvest would have pumped in $250 million for a 60 percent stake.
On Wednesday, the two parties said in a joint statement that the deal had been terminated due to lack of regulatory approval from Egypt and that they would continue to operate as independent entities going forward.
In a separate statement to the Egypt bourse EFG said it will seek to reduce its "expenditure structure" by 35 percent to 500 million Egyptian pounds ($72.11 million) in 2014 from 780 million pounds for 2013.
It also plans to sell non-core assets and will distribute cash proceeds to shareholders, it said.
Shareholders were promised a one-off dividend of 4 Egyptian pounds per share after the deal had closed.
"In aggregate terms, everyone was waiting for the deal, so this could have negative implications on the market," said Egypt-based economist Mona Mansour.
The combination would have given EFG much-needed capital to bolster its business, which was hard hit by political turmoil in the country. QInvest would have gained access to the expertise and reach of the region's most prestigious investment bank.
"A failed deal is not going to bode well for EFG as they could have benefited from the Qatari cash injection," a banking source familiar with the deal said.
"With senior management executives under scrutiny by the government, there is a big question mark over future leadership of the firm. It's unfortunate."
EFG said in its statement that Karim Awad will continue in his role as head of investment banking and appointed him to the board.
The deal was seen as politically sensitive in Egypt because both of EFG's co-chief executives, Hassan Heikal and Yasser El Mallawany, are on trial, along with the two sons of ousted President Hosni Mubarak, over allegations of illegal share dealings in relation to a 2007 transaction.
EFG had said last month the deal would lapse on May 3 without long-awaited approval from Egyptian regulators. It had received approval from a number of countries for the deal, which included spinning off EFG's brokerage, research, asset management, investment banking and infrastructure businesses.
Qatar is Egypt's main political and financial backer in the Gulf and has pledged $5 billion to Cairo in loans and grants to help keep the most populous Arab country afloat. QInvest is majority-owned by Qatar Islamic Bank.
EFG'S business has been hard hit by political events in the country. Its share price is down 27 percent in the last year.
The bank reported a fourth-quarter net loss of 21 million Egyptian pounds ($3 million) in April, compared with a profit of 31 million Egyptian pounds for the year-ago quarter.
For QInvest, the banking source said it had the finance to put the failed deal behind it and build a franchise by hiring talented people, a process already begun.
QInvest hired ex-Credit Suisse banker Michael Katounas to run its investment banking division in April. The firm is headed by Tamim Hamad Al-Kawari, previously the head of Goldman Sachs in Qatar. [ID: nL5N0CT07Q]
Goldman Sachs was advising QInvest and J.P. Morgan Chase was advising EFG.
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