Investors' rights

   When Bank Handlowy was privatized two years ago, CEO Cezary Stypulkowski beamed with pride over the strategy that was used. No dominant strategic investor was needed in Handlowy, one of the most respected of Polish banks. Instead, the bank was privatized through an initial public offering (IPO) and by selling relatively small stakes to a group of stable investors, JP Morgan, Swedbank and Zurich Insurance. A large stake, 30%, stayed with the Treasury Ministry, part of which was held through convertible bonds.

   It's doubtful that Stypulkowski is beaming now, as he enters the fourth month of trying to persuade two key investors, the Treasury Ministry and insurer Powszechny Zaklad Ubezpieczen (PZU) to back a proposed merger with BRE Bank. The two entities, which combined own more than 12% of Handlowy without the convertible bonds, have said they would try to block the merger because they felt the current share-swap ratio was unfair, and because they thought they could get more money for their shares if they sold them outright to a different strategic investor.

   Now PZU is saying that it will back the merger, provided it can become one of several stable investors in Handlowy. Part of its chagrin over the merger stems from the fact that while Handlowy's management consulted with its core foreign investors about the deal, it failed to even have a conversation with the Treasury Ministry or PZU, which actually have a larger stake in the bank than Swedbank and Zurich Insurance. What Stypulkowski had likely not foreseen was that his most silent of investors have actually managed to find a fairly loud voice.

   Shareholders are shareholders are shareholders, and their rights should always be respected. This is a tenet of a free-market system, and protection of those rights builds the kind of security that investors need to hand over their money. Handlowy tried to ignore the voice of some of its minority shareholders, and has suffered endless headaches as a result.

   Maybe PZU, a somewhat beleaguered, formerly state-owned insurer, is not the most sophisticated of shareholders. Maybe it is less willing to see the writing on the wall for Handlowy – merge, get big, build a retail presence or continually see its already shrinking margins thin further. At the same time, though, it is the responsibility of Handlowy's management to respect PZU's presence, and explain things accordingly.

   While Handlowy has escaped the fate of having to bow to a dominant investor, it may have found that having to please several masters is the more difficult option. But at the same time, PZU should come to an agreement with Handlowy and back this merger, as should the Treasury Ministry. They should agree to it because if they don't, the merger will fail and Handlowy's shares will plummet. To allow that would mean that PZU is also acting irresponsibly toward its shareholders.