Message in an IPO

   The upcoming initial public offering (IPO) that is going to float 25% of Powszechny Zaklad Ubezpieczen (PZU) on the Warsaw Stock Exchange again raises questions about the company's privatization. Or rather, its partial privatization. Because, one might justifiably ask, is PZU already private? Or will it be private after the IPO scheduled for the fourth quarter of this year? If we define "private" as "no state involvement" or "as little state involvement as possible," there is still a long road ahead for PZU.

   Last autumn, the state treasury decided to sell 30% of the country's largest insurer to pan-European insurance holding Eureko, which bought 20%, and BIG Bank Gdanski (BIG BG), which bought another 10%. The total price for the stake was zl. 3 billion ($769 million).

   Theoretically, Eureko and BIG BG got quite a lot: a minority holding, four seats on a nine-member supervisory board, and an option to increase their stake by another 10% in the next IPO.

   Theory remained just that, however, and recent months have clearly shown how little power Eureko really had over the company and its president-on-the-loose, Wladyslaw Jamrozy, who joined forces with Deutsche Bank in the battle for control over BIG BG.

   Eureko, who is also a shareholder in BIG BG, later tried to explain that it had no idea what PZU's president was up to and apologized for the insurer's spoiled child behavior.

   The apology is good, but at the same time raises questions about the owner's ability to act as an owner. While the role of the state treasury in the battle over BIG was not clear, it was obvious in the plot to block the Bank Handlowy-BRE Bank merger, when PZU acted in concert with the treasury. And this leads us to the conclusion that the treasury knows more about PZU's plans than its so-called strategic investor does.

   And how private will PZU become after its IPO? With the remaining 45% of shares, the state treasury will still be in control and merely sharing its power with Eureko.

   The interesting issue now is how Eureko will behave during the public offering and whether it's going to execute the option to increase its holdings in PZU by another 10%. This is still a matter under the company's consideration.

   Eureko didn't have the money to buy the initial 20% and needed a substantial loan to cover the acquisition. Also, a number of Eureko shareholders are reported to be not completely happy with the PZU investment. Before the IPO occurs, Eureko needs time to decide on its future with PZU. If its decision is negative, the message to the market will be clear: Eureko will have admitted failure in restructuring the company and will eventuallypull out of the investment.