KPWiG investigation of Templeton likely to reveal no wrongdoing, analysts say
A Securities and Stock Exchange Commission (KPWiG) investigation into the actions of the Franklin Templeton Group during and after Elektrim's recent annual shareholders meeting will not result in any action being taken against the U.S. mutual fund firm, analysts said last week.
"To tell you the truth, (KPWiG) can do nothing," said Andrzej Kasperek, a telecom analyst at Erste Securities Polska.
The KPWiG said on July 14 that it would start an investigation of the recent activities involving the Polish cable, power and telecom conglomerate Elektrim after receiving a complaint from Interelectra Holding of Luxembourg. Interelectra requested an inquiry into Templeton's true percentage of shares in Elektrim in regard to its voting activity in the shareholders meeting of June 30. Interelectra also requested an inquiry into Templeton's public call for the resignations of some of Elektrim's supervisory board members following the meeting. Interelektra has asked the KPWiG to determine if Templeton's activities were in accordance with securities regulations to which all investors are subject.
Interelectra holds a 1.6% stake in Elektrim and has been cooperating with the Polish conglomerate in trading electrical equipment and motors for the last 40 years, Kasperek said. Officially, Templeton controls a 5% stake in Elektrim.
Kasperek said Interelectra's complaint was filed in reaction to the alliance of Templeton and Merging Markets Development, a company that also holds a 5% stake in Elektrim, during the shareholders meeting. At the meeting, company officials proposed a 25.2 million new share issue that would have significantly diluted the value of the existing shares of its investors. Shareholders rejected all but 3.1 million new shares.
But playing a part in leading the shareholder revolt to defeat most of the proposed new share issue by joining forces with Merging Markets, did not mean Templeton broke any securities laws, analysts said. "In Poland there is a loophole that allows a company to do that," Kasperek said.
Bob Creamer, a telecom analyst at Raiffeisen Capital and Investment Polska, called Templeton's actions "possibly justifiable and acceptable."
"If two (investors) have each got 5% and are working together does it mean they have 10%, and therefore anybody working with anybody else may or may not have (the same)?" he said. "But it's not prosecutable."
Following the meeting, Templeton issued a public statement on July 3 calling for the resignations of some of Elektrim's supervisory board members. Templeton said they did not meet the expectations of shareholders and did not adequately represent shareholders' interests.
But Templeton did not violate Polish securities law by calling for the resignations, analysts said.
"The Templeton press statement has a justifiable claim that (Elektrim's) board members don't represent shareholders," Creamer said. Despite Templeton's 5% stake, the company does not have a representative on the supervisory board.
"Institutional investors have little control over the supervisory board because there is no representation of minority shareholders," said Andrzej Nowaczek, an analyst at Credit Suisse First Boston.
The investigation, however, is not focusing exclusively on Templeton's actions, said Jacek Socha, chairman of the KPWiG. "Our investigation is not directed to Templeton, but to a wider (area) to answer the question of whether anything was done without the rules of corporate governance," he said. Socha added that Templeton is part of the investigation, and that there was a question of whether some investors who voted at Elektrim's shareholders meeting owned percentages of equity that were not valid. His office also would examine whether investors took action to decrease the share value of Elektrim, he said.
But Templeton is not protesting the filing of the complaint. "We were in full compliance with the law and welcome the investigation full stop," said Nicholas Fitzwilliams, portfolio manager of Templeton Research Poland.
