Construction merger moves forward

The merger of construction companies Polnord and Energobudowa is set to go ahead despite recent reports that the deal looked doomed, said Andrzej Ubertowski, president of Polnord.

Analysts said developer Prokom Investments (PI), a shareholder in both firms, is delaying the merger as the lull on the construction market puts a question mark over Miasteczko Wilanów, a development on which the companies were to collaborate.

The merger of Gdańsk-based Polnord, a commercial and residential builder, and Opole's Energobudowa, an industrial construction firm, was announced in June with plans to fix the share-swap ratio and complete the transaction in the third quarter of 2001. The new firm, Energobudowa Polnord, was to be registered in the first quarter of 2002. But the future of the merger came in doubt when the companies failed to declare a share-swap ratio after the publication of their half-year reports last month.

"We are continuing with work aimed at finalizing the process at some time in the future," Ubertowski said, though he refused to reveal details about new deadlines for the share swap.

Market observers blame the delays on PI, a subsidiary of software firm Prokom Software. PI increased its stake in Polnord by 2.96% last week after receiving permission from the Securities and Exchange Commission (KPWiG) to raise its stake in the company to more than 30%. PI now owns 2.79% of Polnord, while Energobudowa, 90.42% of which belongs to Prokom, owns a further 30.13%.

Zbigniew Bętlewski, analyst at the U.S.' Amerbrokers, said PI is likely using the merger to create a construction company capable of serving as general contractor on Miasteczko Wilanów, a residential and commercial development set to begin construction in spring 2002. The development, covering 169 hectares in Warsaw's Wilanów district and worth about $1 billion would provide Energobudowa Polnord a source of revenue for eight to 10 years.

"It is possible that the merger is aimed at creating a strong partner who could be the principal contractor on the project," Bętlewski said. Market observers speculate that the decline on the Warsaw housing market makes the Miasteczko Wilanów development a less reliable source of revenue for Energobudowa Polnord, leading PI to rethink the merger.

Beata Stelmach, a member of the board of Prokom Software, would not comment on the role of the Miasteczko Wilanów development in the merger, but admitted PI planned to work closely with Energobudowa Polnord on future developments. "It is too soon to talk about specific projects, these issues are still under discussion as we have only just increased our stake and everything is still in front of us," Stelmach said.

Bartosz Ostafiński, analyst at brokerage Beskidzki Dom Maklerski, said the merger, which would allow the new company to reduce administrative costs and participate in tenders for larger contracts, stands a good chance of completion because so much of the capital of Polnord and Energobudowa belongs to PI. "There is no danger that the merger will fall victim to a conflict of interests," Ostafiński said.

Greg Goodale