EI strategy - a way to follow?

By Hilary Davies

Enterprise Investors, who recently sold its 69 percent share of Polfa Kutno and its 17.5 percent share in Grupa Kęty, is also in the process of concluding its 68 percent share of Stomil Sanok S.A. These three exits, according to Stanisław Knaflewski (partner) and Iwona Drawot (PR) at EI, are helping to initiate a positive new trend on the Warsaw Stock Exchange.

Recent press criticism of the State Treasury's approach to privatization has even gone so far as to hold up EI as an example for the government to follow. Over the last two years, the government seems to have been doing its best to paralyze the WSE by a muddy, politically spiked and chaotic approach to privatization, so the argument goes. Yet in the midst of WSE's paralysis, and at a time when no strategic buyers were to be found, EI was able to sell its shares in the (once state-owned) Grupa Kęty to financial investors last November, within the course of a single day. This, in turn, stimulated action on the WSE, raising Grupa Kety's share price from zł.50 to about zł.120 within the space of ten months.

Representatives of Enterprise Investors demur on the possibility of comparing their strategies with those of the State Treasury. Nevertheless, "EI is very proud of the positive effect we are having on the market," says Iwona Drawot, which they put down to the strict application of principles of transparency and responsible corporate governance.

The sale, on September 26, of EI's 69 percent share in pharmaceuticals company Polfa Warsaw, which was the largest share packet sold to financial investors in the history of the Polish stock exchange, was similarly praised. According to Ryszard Wojtkowski, EI partner and chairman of Polfa Kutno, the transaction indicates that: "portfolio investors operating on the Warsaw Stock Exchange are able to take over control in a public company and are not afraid to do so."

These two exits, together with EI's upcoming exit of its 88 percent share in rubber manufacturer Stomil Sanok SA, which will be the first management buyout performed in the history of the Warsaw Stock Exchange, represent what may be termed a positive new trend on the Warsaw Stock Exchange. Altogether, say Enterprise Investors, the three exits show that institutional investors are finally beginning to take a long-term interest in companies.

"It's wrong for the WSE to place such value on companies which are going to be bought by strategic investors, because these kinds of companies are the ones that, once bought up by a strategic investor, will then become uninteresting for other investors," says Knaflewski.

In Knaflewski's view, portfolio investors should follow Enterprise Investor's own approach, and go specifically for those companies which aren't owned by strategic investors.