By Dr. Sabah al-Binali, Chief Investment Officer; CEO – Credit and Advisor to the Chairman, SHUAA Capital; Contributor, The National
A whole lot of economic vision plans have come out in the last decade or so. It seems to me, however, that only Saudi’s Vision 2030 actually addresses the issue of managing an economy post the 2014 oil price drop. One wonders if the other visions are being updated.
Shuaa just acquired 11 per cent of a Kuwaiti broker. The news report mentions that it is a “strategic investment”, that Shuaa has an “evolutionary strategy” and that there will be “synergies” and “access to [the Kuwaiti broker’s] trading platform”. Let’s understand something: 11 per cent can never be operationally strategic, does not allow for synergies and certainly, a minority shareholder should never get preferential treatment and access to the trading platform. A strategic acquisition program means buying 100 per cent or at least 50 per cent plus so that one has legal control over the entity, although at less than 100 per cent there is still a fiduciary duty to the minority shareholders. If one firm controls another firm with less than 50 per cent of the ordinary voting equity then there is a serious lapse of corporate governance.
The Majid Al Futtaim (MAF) Group, think Mall of the Emirates and Carrefour, on the other hand, does understand what a strategic acquisition is. It bought 100 per cent of the Geant supermarkets in the Middle East. MAF also has the earnings to support a strategy based on acquisitions with earnings of Dh2bn per annum.
MAF is a truly inspiring story of a business built on strong operating foundations and using its free cash flow to take market share.
Free cash flow: the primary performance measure a shareholder needs to know if the company is doing well.
Sabah Al Binali is an active investor and entrepreneurial leader with a track record of growing companies in the MENA region. You can read more of his thoughts at al-binali.com.
This article was originally published in The National, for the CFO Strategies Forum MENA 2016.