Al Ezz Steel Rebars (EZZ Steel)
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تطور عملية الاستحواذ (PDF 117KB)

Chronology of the acquisition of EZDK by Ezz Steel

EZDK (Al-Ezz Dekheila Steel Co.) is the largest steel manufacturing facility in Egypt. It lies in Dekheila, west of Alexandria, Egypt's second biggest city and its main port. The Company was established in 1982 and started production in 1986. The former name for the company was the Alexandria National Iron and Steel Company - ANSDK. ANSDK was established between Egyptian public sector companies, global development agencies and Japanese corporate enterprises.


Prior to 1998, EZDK had been focused on producing long steel products for the Egyptian construction market. In early 1998, EZDK decided to build a flat steel production complex, with a capacity of 1 million tons annually.

The Memorandum of Understanding in relation to the project was finalized by the International Finance Corporation (World Bank Group) in May 1998, and outlined a cost for the project of US$628 million.

This was to be financed as follows:
  • US$220.5 million from a capital increase
  • US$382.5 million from long term credit facilities
  • US$25 million self-financed from the surplus cash flow of EZDK during the project execution period
The investment cost of the project subsequently increased to reach US$789 million:

Original project cost US$628 million
Supplimentary investments US$79 million
Investments in land sections and civil works US$82 million
Total US$789 million
In order to fund this investment, EZDK's equity was increased from 7 to 12 million shares, with a fair market value per share of LE152 and a total value of US$220.5 million (LE750 million). At this initial stage, the Employee Shareholders' Union was used for the second time to fill the subscription gap (the first time was in a capital increase that took place in 1994); the Union covered about half of the capital increase, amounting to approximately US$105 million (LE357 million), financing this through bank loans.

Due to this increase in the cost of the investment, which was not consistent with the original business plan, the International Finance Corporation (which had a total commitment of US$110 million), Citibank (which had a total commitment of US$25 million) and the African Development Bank (which had a total commitment of US$33 million), withdrew from the project.

All of these factors led to a widening funding gap which had to be covered in order to continue with the project.

After the capital increase the total shares held by the Employee Shareholders' Union reached 3,638,134 shares, as follows:
  • 914,020 shares from the 1994 capital increase
  • 2,724,114 shares from the 1998 capital increase
Accordingly the indebtedness of the Employee Shareholders' Union amounted to US$122.9 million (LE418 million):
  • US$74.4 million (LE253 million): borrowed from the Bank of Alexandria
  • US$25 million (LE85 million): borrowed from the National Bank of Egypt
  • US$23.5 million (LE80 million): interest free loans granted by EZDK, of which US$8.9 (LE30 million) was written off by the Company in 2000
It soon became apparent that the Employee Shareholders' Union did not have the cash flow to meet its loan repayments and these had to be funded by EZDK.

EZDK's operations were, therefore, threatened by bankruptcy due to the significant funding gap, which had been covered by short-term loans or through the postponement of outstanding payments to suppliers. These circumstances led EZDK to lose its credibility with many suppliers, as well as Egyptian and foreign institutions, and it became unable to implement a clear strategy to deal with the financial and marketing constraints it faced.

The acquisition of EZDK by Ezz Steel

The acquisition of EZDK by Ezz Steel (formerly Al-Ezz Steel Rebars) took place over five phases:

Phase One: 1999 - 2000 Ezz Steel acquires 20.89% stake

In an attempt to close the funding gap for the project and according to a Memorandum of Understanding between Ezz Steel, EZDK and EZDK's Employee Shareholders' Union signed in 1999, Ezz Steel was offered 1,188,000 shares (9.9%) of EZDK owned by the Employee Shareholders' Union as well as 3 million additional shares to be issued by EZDK through a capital increase.

The Employee Shareholders' Union shares were sold to Ezz Steel under a tripartite agreement with the Union and lending banks, to enable the Union to meet its liabilities. Ezz Steel paid LE152 per share, a significant premium to the market price at that time .The proceeds were used to settle part of the Union's liabilities with the Bank of Alexandria and National Bank of Egypt.

Later in 1999, EZDK's Board issued its approval to increase the company's paid-in-capital from US$355 million (LE1.2 billion) to US$441 (LE1.5 billion) through a rights issue in favour of Ezz Steel (according to the MoU) and all other shareholders decided to decline their pre-emptive rights to the capital increase. The capital increase was completed in January 2000, at LE152 per share for an additional 1,667,767 ordinary shares, equating to a total of US$74.5 million (LE253.5 million). Ezz Steel now owned 20.89% of EZDK's total capital (13,667,767 ordinary shares), and the remainder of the capital increase was cancelled at the Shareholders' General Assembly of 1st March 2001.

Ezz Steel funded its subscription to the capital increase through an US$86 million (c.LE 294 million) US Dollar denominated bond issued on the Egyptian Stock Exchange during early 2000.

Phase Two: 2001 - 2003 Ezz Industries acquires 11.79% stake

During March 2001, EZDK employees went on strike claiming that they should not be burdened by the loans borrowed to cover the Union's subscriptions in capital increases and that all social charges deducted in the past from the workers' pay in favour of the Union (amounting to LE61.1 million) should be refunded. In order to meet these demands, EZDK extended a LE61.1 million loan to the Union and the Union decided to offer its shares for sale at LE154.74 per share - equating to the original purchase price plus the interest due to the lending banks. However, all existing shareholders declined to purchase these shares

The Union could not service this debt due to lack of sufficient funds, consequently, the Bank of Alexandria issued an official notice to the Union requesting the overdue payments which had amounted to LE288.62 million.

In October 2003, Ezz Industries, acquired the Union's shares (1,611,430 shares) for a total price of LE356 million, at a price per share of LE220.7. The purchase was in two parts, the first being LE288.62 million paid directly to the lending banks to settle the Union's liabilities, and the second, representing LE67.05 million, was paid to the Union to refund charges to employees. This acquisition was paid in instalments and was completed in February 2006.

Ezz Industries thereby acquired 11.79% of EZDK, while Ezz Steel held 20.89%, in aggregate representing a total of 4,467,197 shares or 32.68% of EZDK's total capital.

Phase Three: 2004 - 2005 Ezz Industries acquires an additional 17.59% stake

During 2004 and 2005, Ezz Industries acquired the following foreign shareholder's interests in EZDK:
  • 600,000 shares from the International Finance Corporation purchased in April 2004
    • 10% paid upon agreement, followed by 6 semi-annual instalments
  • 602,400 Shares from JFE Steel Corporation purchased in June 2004
    • Paid over three instalments
  • 361,200 shares from Kobe Steel Corporation purchased in June 2004
    • Paid over three instalments
  • 600,000 shares from the African Development Bank purchased in September 2004
    • 50% paid upon agreement, followed by three semi-annual instalments
  • 241,200 shares from Tomen Corporation purchased in July 2005
    • Paid over two instalments, the last of which was settled in September 2005
In total, Ezz Industries acquired an additional 2,404,800 shares representing 17.59% of EZDK.

Upon completion of these acquisitions in July 2005, Ezz Steel held 20.89% of EZDK and Ezz Industries held 29.38%, representing a total of 7,871,997 shares or 50.28% of EZDK's total issued capital.

The following table summarises the above three phases:

Date Buyer Selling shareholder No. of shares %age of total
Phase One
Oct-99 Al Ezz Steel Rebars (Ezz Steel) EZDK's Employees Fund 543,500 3.98%
Nov-99 Al Ezz Steel Rebars (Ezz Steel) EZDK's Employees Fund 644,500 4.72%
Jan-00 Al Ezz Steel Rebars (Ezz Steel) Capital Increase 1,667,767 12.20%
Total Phase One 2,855,767 20.89%
Phase Two
Oct-03 Ezz Industries EZDK's Employees Fund 1,611,430 11.79%
Total Phase One & Phase Two 4,467,197 32.68%
Phase Three
Apr-04 Subsidiary of Ezz Industries (EICII) International Finance Corporation (IFC) 600,000 4.39%
Jun-04 Subsidiary of Ezz Industries (EGCCI) JFE Company 602,400 4.41%
Jun-04 Subsidiary of Ezz Industries (EGCCI) Kobe Company 361,200 2.64%
Sep-04 Subsidiary of Ezz Industries (MIDC) African Development Bank (ADB) 600,000 4.39%
Jul-05 Ezz Industries TOMEN Corporation 241,200 1.76%
Total Phase One, Two & Three 6,871,997 50.28%
Total EZDK shares outstanding (until March 2008) 13,667,767  
Phase Four: 2006 - Ezz Industries share holding consolidated into Ezz Steel

During 2006, to consolidate all of the group's steel business into one balance sheet, Ezz Industries chose to transfer its ownership in EZDK to Ezz Steel, thus creating a single, unified, blue chip company attractive to capital markets.

The acquisition by Ezz Steel of Ezz Industries' 29.38% stake in EZDK was to be completed through a swap of shares between Ezz Industries and Ezz Steel regulated under the Executive Regulations of the Egyptian Capital Markets Law 92/1995.

The swap ratio was fixed, based on the historical trading value of both Ezz Steel and EZDK shares on the Egyptian Exchange for the preceding period of 24 months and was validated by the company's external auditors (KPMG-Hazem Hassan). This resulted in a swap ratio of 21.9 Ezz Steel ordinary shares to one ordinary share of EZDK.

In February 2006, Ezz Steel's General Shareholders Assembly approved the share swap and all of Ezz Industries' direct holdings in EZDK (being 4,016,230 shares) were transferred to Ezz Steel.

This brought Ezz Steel's direct shareholding in EZDK to 6,871,997 shares or 50.28% of total issued capital. The swap transaction was approved by the Capital Market Authority on 8th of May 2006 and was completed on 23rd of May 2006.

In exchange for Ezz Industries shares in EZDK, Ezz Steel issued 87,979,534 new shares to Ezz Industries. Ezz Industries shareholding in Ezz Steel increased from c.58% to c.79%.

Phase Five: 2008 - 2010 Ezz Steel increases its share holding in EZDK to 54.49%

In March 2008, the Extraordinary General Shareholders Assembly of EZDK approved the write-off of 303,354 treasury shares, bringing the total issued capital of EZDK to 13,364,413 shares.

In June 2008, Ezz Steel acquired 243,161 EZDK shares from the free-float traded in the market, representing 1.82% of EZDK's issued capital.

In April 2010, Ezz Steel acquired 179,591 EZDK shares from the free-float traded in the market, representing 1.34% of EZDK's issued capital.

In April 2010, Ezz Steel had acquired a total of 7,295,158 shares or 54.59% of EZDK's total issued capital.

The following table summarises Phase Five and the current shareholding structure:

Date Buyer Selling shareholder No. of shares %age of total
Jun-08 Ezz Steel Free Float 243,570 1.82%
Apr-10 Ezz Steel Free Float 179,591 1.34%
Total Phase Five 423,161 3.16%
Total Ezz Steel shares in EZDK 7,295,158 54.59%
Total EZDK shares outstanding (post March 2008) 13,364,413