In a quest to gain a board seat at Egypt-based Prime Holding, Sameem Capital Management succeeded in lobbying regulators to improve the regulatory environment for activists, potentially paving the way for more campaigns.

Following a three-year crusade, Sameem exited the stock in October last year with a lot to show for it. Sameem said it made a 63% return, while successfully cajoling Egyptian market regulators to give more powers to minority shareholders. This could very well be enough to invite other activists to try their hand in Egypt, be they domestic competitors or foreign investors.

Trial by fire

Sameem, which has an authorized capital of 600 million Egyptian pounds ($38 million), is made up of a five-person team led by CEO Khaled Hassan Rashed. Its campaign at Prime was no easy feat. Targeting a fully regulated investment bank, whose founders both owned a majority stake and sat on the board, was like walking a tightrope.

The activist began building its stake in 2016, and early discussions between Prime and Sameem focused on strategy. Discussions went well and the activist was promised a board seat. By 2017, Sameem had built a 12% stake with the belief that it would gain board representation. However, Prime had a change of heart and refused to fulfil its promise.

At this point, Sameem took up the mantle of activist investor, a term that was alien to Egypt at the time. “It was not an easy one – because [it required] to raise awareness and actually market the idea to regulators, to the shareholders, to the stock market, to everyone around us. It was the first [activist campaign in Egypt] and nobody fully understood the strategy yet,” Sameem CEO Rashed told Activist Insight Online in an interview.

The activist used various tactics, including increasing its stake to 26%, taking legal action against the company, and pushing Egypt’s financial regulator to investigate the company. However, Rashed realized that gaining board representation was a mammoth task without the support of the incumbent board.

As a result, the activist turned its focus to regulators. At the time of Sameem’s campaign, Egypt’s regulations specified that the composition of the board be decided by the majority shareholder. In the case of Prime, this was its founders – former CEO Mohamed Maher and Chairman Shereen El Kady – who, along with close friends, owned a combined 51% of the investment bank.

Sameem’s campaign got a lucky break in 2018. After lobbying Egypt’s Financial Regulatory Authority, the regulator changed the law to guarantee a board seat to any shareholder that owns at least 10%. “That was one of the achievements, this will allow us or any other activist to obtain a board seat by law when acquiring a minority stake in a publicly listed firm,” Rashed said.

By June 2019, Sameem had obtained two board seats at Prime, and the activist was able to pressure the investment bank to make further changes including dividend payments and revamping its leadership team.

Gateway to Egypt

The hard-fought win at Prime sent ripples through Egypt. Rashed said that the campaign “set a precedent, and now a lot of people in Egypt are aware of what shareholder activism is.”

Sameem is hoping that the introduction of activism will inspire others to try the strategy.

Rashed is confident that the country presents enough opportunity for activists – with the majority of companies much less complicated than Prime. Of the 250 public companies in Egypt, Rashed said that “at least 100 of them are ripe for shareholder activism.”

Competitors welcome

Rashed believes Sameem needs competition for the activism strategy to take off but domestic hedge funds are unlikely to try the strategy. “The majority of financial players in Egypt are in the old traditional investment banking business, with brokerage and research arms – they’re not equipped for this strategy at least because of their conflict of interest with the target companies,” he said.

But he nonetheless hopes his campaign could instead attract attention from foreign activists. During its campaign at Prime, Sameem was in contact with an unidentified foreign activist that was interested in investing in Egypt. The outside fund decided against action at the time, choosing instead to see how the Prime campaign unfolded.

Now, Rashed believes that foreign investors could see the benefit of co-investing with Sameem. “You need boots on the ground, you really need to know your way around, understanding the story and history of things really matter,” he said. “Some investments might be too big to fly solo, so we would be happy to co-invest and work closely with international activist firms. We believe we can be the gateway fund for activist hedge funds in the Egyptian market.”