Men of their word
Treasury Minister Emil Wasacz and Powszechny Zaklad Ubezpieczen's (PZU) President Wladyslaw Jamrozy have reason to celebrate after Bank Handlowy's shareholders met last week to dissolve the merger with BRE Bank. Wasacz and Jamrozy said they would stop the merger and they've succeeded. It's good to know that the minister and the president of Poland's largest insurer are men of their word. But are they familiar with the phrase "pyrrhic victory?"
The picture after the non-merger looks like this: instead of one strong bank, a corporate banking market leader with every chance of building a retail presence, we're now going to see fierce competition between two global players, Citigroup and Commerzbank. It's difficult to say how much this competition will cost their Polish operations, Bank Handlowy and BRE Bank. It's equally difficult to measure the price of lost opportunity.
So why didn't the merger happen? It seems hurt feelings were a factor. Both the treasury and PZU complained that Handlowy's management didn't consult them on the merger. But why should it have? When the merger was announced, the treasury held about 7% of Handlowy shares. PZU was unofficially reported to have less than 2% and an additional 24% of shares in convertible bonds transferred by the treasury in March of last year, which didn't give PZU full shareholder rights. Let's make this quite clear: The purpose of the bond issue was to make its holder the treasury or its successors a passive shareholder with no say over Handlowy's fate. Not to mention that proceedings from the bond sale were supposed to support pension system reform, not an individual insurer. By transferring bonds to PZU, the treasury violated its gentleman's agreement with Handlowy. It also failed to notify Handlowy of the change in shareholder structure, arguing that as an owner it could do whatever it wanted with the stake. No wonder Handlowy turned the argument against it you are not our relevant shareholder, so we are not obliged to consult anything with you guys. And that's how the whole war started.
Both sides are undoubtedly to blame for the merger's failure. There are several lessons both should learn from the situation. Handlowy's management board should remember that nothing is assured until the shareholders give their final nod. And the treasury should start accepting that a company, once privatized, is out of its control. It should get used to having less control over formerly state-owned firms. That's the whole point of a free market economy, after all.
