It's a big deal in a long running story.
Once upon a time, it was inconceivable that a listed company could exist without a 'strategic foreign investor' - a majority shareholder from the same business that could hand the local firm know-how and perhaps pony up some capital. At the time, all sins could be forgiven save the sin of not having such a strategic investor.
Things got interesting, if not fully mature, not long thereafter as sins started being sought amongst select strategic investors. Local institutional money started to test its confidence and flex early muscles. Thus a group of minority investors successfully challenged Michelin on questions of transfer pricing and forced a buy-out from the Polish tire-making unit. Similarly, activist investors forced Pernod Ricard to reconsider its approach to Polish foods firm Agros. Every pendulum swings too far: a local fund takeover of a telco-power conglomerate Elektrim proved successful at first, ugly thereafter.
And there we stood. Local institutional investors - increasingly weighty as pension funds were filled with social security premiums and mutual funds were filled with rising household savings - could flex muscle when they wanted to be activist (and pay the lawyers). But the Warsaw market remained a bit small and illiquid for local institutional investors to vote with their feet (punish management with a sell-off when events disappoint).
The past two weeks has seen two M&A deals where local investors, disappointed with the nature of the deal, could vote with their feet and drive share prices into the ground. Listed media group Agora announced purchase of an online classified ads business at what analysts called a shockingly high price. My favorite analyst comment: "Electrify me, but not in the chair, please." Agora paid 7.4% of its assets for 1.4% of its sales. Agora lost 7.3% for the session. One local fund manager has since demanded that Agora supplement its meager dividend – justified with respect to the need for acquisitions – with a share buy-back program, i.e. – if you don’t know how to spend money well, spend it on your shareholders.
One week later, listed broadcaster TVN agrees to buy a 25% stake in a start-up digital satellite television platform from their common parent company. The deal had been expected, albeit for much later once the start-up started breaking even and providing value. The deal valued the start-up above the valuation given by the market to a more mature rival which debuted only shortly prior. The same brokerage: "Would any sane company do this?" and "the majority owning parent is riding roughshod over minority investors" and "TVN has just flushed the equivalent of 22% of its current shareholder equity down the toilet." Shares lost 9.3% the first day, 4.0% the next.
The take-away - Polish institutional money can increasingly vote with its feet.
More notably, the market has just seen an M&A deal fall apart as the deal's designer stated up front that his key Polish financial investors would need to be brought on board for a deal to happen, even though he was positioned to force a deal without them.
Builder Pol-Aqua made a preliminary bid for real-estate developer Polnord (both firms share a key investor, the investment wing of Polish magnate Ryszard Krauze). Pol-Aqua CEO Marek Stefanski stated up front that his top two financial investors - Polish pension fund Commercial Union and mutual fund group Arka - would have to agree to the deal before he would proceed. Talks led to conditions, conditions included a new price and insistence that Krauze would disappear from the shareholder list, and those conditions sparked protest from Krauze. Stefanski let the deal die - he owns the votes to force the deal - rather than run against the will of his Polish financial shareholders.
I would toss in one or two extra notes, notable as they come from the capital hungry banking sector: ING Bank Slaski had attempted to propose its shareholders take no dividend from 2007 profits, citing tough capital requirements and strong growth prospects. ING backed down, without a real fight, following shareholder outcry. Bank Handlowy, a unit of the headlined Citigrop, has just announced its intention to trim its dividend proposal.
One part of me is a bit broken hearted: I enjoy writing M&A deals and I absolutely love writing legal challenges launched by activist shareholders. Most financial journalists do. Endless fun, of which we currently have less and less as institutional money can increasingly vote with their feet, and as they show jitters to recent M&A deals. Another part of me suspects that the real story is now elsewhere and will be watching for further signs that the Polish capital market is taking on another element of market maturity.