VZCZCXYZ0039
RR RUEHWEB

DE RUEHEG #1474 0681331
ZNR UUUUU ZZH
R 091331Z MAR 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6399
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS CAIRO 001474 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF 
USAID FOR ANE/MEA MCCLOUD 
USTR FOR SAUMS 
TREASURY FOR MILLS/NUGENT/PETERS 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EIND EG
SUBJECT: EGYPTIAN RETAIL CHAIN PRIVATIZATION GENERATES 
CONTROVERSY 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
¶1.  (SBU) Summary:  The Nazif administration,s proposed sale 
of the Omar Effendi Company - a major retail chain founded in 
1856 - to a private investor is generating intense debate 
over the company,s proper valuation.  Conditions the 
administration has set, especially for the purpose of 
avoiding layoffs, have further complicated negotiations. 
However, the GOE is loath to let the privatization deal 
collapse for what would be an embarrassing third time.  End 
summary. 
 
----------------------------------------- 
Retail landmark... or perennial headache? 
----------------------------------------- 
 
¶2.  (U) In July 2005, the Ministry of Investment (MOI)'s 
Holding Company for Trade announced it would sell Omar 
Effendi, an icon of Egyptian retailing, to an anchor investor 
or group of investors, later extending its bid deadline to 
October 2005.  Negotiations are underway with the sole 
bidder, the Saudi Anwal Company, on the basis of a valuation 
of around LE 504.9 million (approximately $88.6 million), 
according to press reports. 
¶3.  (U) Over the last week, the press has accused the GOE of 
undervaluing Omar Effendi and squandering the value of a 
national symbol.  According to the rumors, the GOE Holding 
Company for Trade formed a committee outside the normal 
valuation process and projected the retail chain was worth 
over LE 1 billion.  The GOE, however, maintains that it 
followed standard valuation procedures, insists that the 
Saudi company's offer is actually 10% higher that the chain's 
true value, and points out that the valuation exceeds those 
made in earlier privatization offers for the company. 
¶4.  (U) The valuation issue is not the only impediment to 
completion of the deal.  This is the third time the chain is 
up for sale; in connection with previous offers, in 1999 and 
again in 2001, the GOE was unable to reach agreement with 
bidders (all from Arab countries) due to Omar Effendi's huge 
payroll, antiquated retail methods, the poor condition of 
stores, and other problems.  Overstaffing remains the biggest 
concern: despite efforts to improve investor interest through 
an offer of early retirement packages to employees in 2000, 
the number of employees - 6000 - is still almost double 
international retail staffing levels. 
¶5.  (SBU) The MOI's insistence on conditions for sale - in 
part, to assuage fears of a mass layoff - has further 
complicated matters.  According to the terms, the buyer must 
agree to maintain 10% of the shares under the ownership of 
the holding company and must commit to preserving workers' 
rights and privileges under the status quo - i.e., 
remuneration, benefits, etc., under existing contracts - 
while an additional 10% of shares is to be reserved for 
employees at a discount.  Minister of Investment Mohieldin 
has stated that an improved early retirement scheme will be 
available for workers, has ordered a three-month bonus be 
paid to employees, and has promised another six-month bonus 
after the contract is signed. 
 
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Comment 
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¶6.  (SBU) We assess that the MOI will push the sale through 
rather than allow it to collapse in the face of opposition; 
failure could undermine the GOE's efforts at privatization, 
making for unflattering comparisons between the Nazif 
administration and the predecessors that failed to sell Omar 
Effendi in 1999 and 2001.  However, the MOI is contending 
with a formidable opposition: rumors abound that those 
responsible for the media campaign on the valuation issue are 
a wealthy, powerful, and ultimately corrupt lobby group of 
suppliers to public retail chains.  This group profits by 
supplying the chains with low-quality goods at inflated 
prices; some also rent areas within the chains to sell their 
goods.  Such suppliers stand to lose money when Omar 
Effendi's new private owners - and those of other retail 
chains that might go private, once a precedent is set - 
demand to pay fair market prices for inputs.  End comment. 
RICCIARDONE