A Dutch court just threw a spanner in Orascom’s works — and it’s a warning to every Egyptian company that set up shop in the Netherlands. Dutch-listed fertilizer giant OCI Global will remove its proposed merger with EGX- and ADX-listed Orascom Construction from the agenda of tomorrow’s shareholder meeting after a ruling from the Enterprise Chamber of the Amsterdam Court of Appeal that effectively blocks the transaction, according to a press release (pdf) and a court ruling.

The court sided with minority shareholders, giving credence to their allegations of conflicts of interest as well as their claim that investor protections on the ADX are somehow lesser. The court ruled that moving Orascom’s listing to the ADX could harm their interests, saying that most Dutch brokers do not offer access to the Abu Dhabi exchange. That would, the plaintiffs argued, effectively force retail investors to sell at a loss or navigate complex bureaucratic hurdles to continue as shareholders.

The court also found it concerning that OCI’s CEO handled the negotiations with Orascom while also being a non-executive board member at Orascom — and felt that the board was simply following Nassef Sawiris’ preferences. And it zeroed in on a standard disclaimer in a Beltone report on the transaction that notes the work wasn’t legally independent research, but for marketing purposes. OCI used the Beltone report to defend the valuation in the transaction.

What got blocked: The merger would have seen OCI shareholders swap their stock for roughly 97.8 mn Orascom Construction shares at an exchange ratio of 0.46 Orascom share for each OCI share, based on equity values of USD 1.52 bn for Orascom and USD 1.35 bn for OCI. The board formally approved issuing 97.2 mn new Orascom shares at a USD 12.79 premium, with the remaining 561.8k shares coming from OCI’s existing stake in the company.

Why it matters: This would have seen the two Nassef Sawiris-backed firms combine into a single Abu Dhabi-based infrastructure and investment platform. If the merger ultimately goes through, the combined group would start with a liquidity position that could surpass USD 1.5 bn, giving it substantial room to scale its infrastructure strategy, according to a CI Capital note seen by EnterpriseAM.

What was not blocked: Shareholders will still vote on the sale of OCI Ammonia Holding, allowing the company to raise cash even as the merger is frozen.

What’s next: Two temporary independent directors now oversee the board, giving them veto power over any merger. The Sawiris family must either revise the offer to satisfy the new directors or abandon the transaction and pursue another strategy.

Our take

This is the downside of setting up shop in an offshore jurisdiction, as many Egyptian companies have done in the Netherlands in the past 7-10 years. (We’re looking at you in particular, Planet Startup.)

The mere fact that a jurisdiction is in the West doesn’t mean the legal system will be any more amenable to your plans than ours would have been. Faster? Sure. Better-equipped to handle vanilla disputes? Yes. Recognize and understand all of the provisions of a modern shareholders’ agreement? Yup. But also … European. It’s a jurisdiction that takes minority shareholder rights seriously, where activist investors are a thing, and there the letter of the law is enforced in a — naturally enough — European way.

In this case, that means living with the view of a Dutch judge who apparently believes opening an ADX brokerage account is akin to being asked to learn how to do particle physics.

What Orascom is trying to do here wouldn’t cause a single raised eyebrow in MENA, but when you set up a BV to get seamless dividend management, consistent capital gains treatments, the honoring of complex shareholder agreements, and all the rest? Well, you also get the full Dutch judicial system alongside a requirement that you have substantial business presence in the Netherlands.

Sound smart: Many big Egyptian names have set up shop in the Netherlands in the past decade to capture revenues offshore during the last two currency crises, be more tax efficient, and ensure that complex, modern shareholder agreements are enforceable. A handful of big companies like OC paved the way, but the Netherlands became a destination of choice for Egyptian startups, in particular.

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