Eureko still tightlipped on future role in PZU
While the country's largest insurer Powszechny Zaklad Ubezpieczen (PZU) will undergo its initial public offering (IPO) in the last quarter of 2000, its strategic investors, pan-European insurer Eureko and BIG Bank Gdanski (BIG BG), are yet to make their next moves.
Analysts said Eureko, which alongside BIG BG bought a 30% stake in PZU for zl. 3 billion ($967.74 million) last October, is well placed to take control of the firm. But Eureko reiterated last week that problems with PZU's management must be resolved before it commits to purchasing a further stake.
"We are still very interested, but there are a number of issues to be settled and all of them revolve around corporate governance," said Lorrie Morgan, Eureko's spokeswoman.
While Eureko has its eyes on motor insurance, the Eureko-BIG BG consortium has been unable to exercise any real influence on PZU's operations so far, Morgan said. This is despite the fact that both Eureko and BIG BG have two seats each on PZU's nine-member supervisory board. In addition, PZU has yet to offer services such as bank assurance, in which Eureko has expertise in other European countries and on the basis of which the Treasury Ministry accepted the consortium's bid.
"There also has to be some implementation of the company's development plan" before Eureko ups its stake, Morgan said.
PZU is the dominant entity in Polish insurance, with a 60% market share. Last year its net profit rose 61.5% to zl. 467.9 million ($120 million) against 1998. Artur Szeski, an analyst at CDM Pekao Securities, said that the IPO this year is due to bring around zl. 2.5 billion ($609.8 million) to the state coffers.
Eureko originally intended to purchase up to 50% of shares in PZU. "The definite plan was to increase its stake," Szeski said. But other than the firm's declaration of interest in PZU, Morgan would not disclose how much more Eureko plans to buy.
For the forseeable future, it looks as if the Eureko-BIG BG consortium will hold 30% in PZU, 25% will be publicly traded by the end of the year and the treasury will have a controlling stake of 45%.
Marek Juras, an analyst at Erste Securities Polska, said the October presidential elections will seal PZU's shareholder structure for the time being. "For political reasons, there (will) be pressure on the treasury to show that it's not selling PZU to foreigners," he said. "This is a really important company; if you sell (PZU) to (foreigners) you sell the whole sector." Juras added it is likely there will be concessions for domestic investors during PZU's IPO.
But political considerations aside, Eureko is in a strong position. When the consortium signed the deal last October, the treasury agreed it would not sell a larger share than 30% to another single investor, Morgan said. Furthermore, the 25% on offer in the IPO is not enough for a single investor to take control of the firm. "It would be difficult, and if someone wants to buy a controlling stake, they will at least have to come to an agreement with Eureko," Juras said.
More uncertain is the question of a 15% stake in PZU, which, as in other large formerly state-owned firms, is likely to be transferred to its employees, Szeski said. After a two-year interim, these shares can hit the Warsaw Stock Exchange. Analysts said that with 40% of PZU stock publicly traded, interested parties could override Eureko's stake should it not have increased its holdings in the firm by that time.
Right now, Eureko is focusing on buying out BIG BG's stake in PZU to strengthen its position, analysts said. Morgan denied this saying, "BIG BG remains our strategic partner in the consortium, this is a fact."
But with Deutsche Bank set to take over BIG BG in the near future, analysts expect it to sell its 10% stake in PZU to Eureko. The German bank has already declared it is not interested in the insurer. "My bet is Eureko will buy the 10%, taking 30%, and after the float there will be no offering in PZU for a while," Szeski said.
BIG BG shareholders are currently in negotiations expected to finalize the bank's future. One piece of the jigsaw was placed last week when Eureko pulled out of BIG BG's pension fund Ego, selling its 45% stake in the venture to the bank. Under Polish law, Eureko was barred from being a shareholder in more than one fund, and it already owed a stake in PZU's Zlota Jesien venture. Juras said the move will smooth the way for Deutsche to sell the BIG BG stake to Eureko.
