Price lacks fizz in Strzelec share issue

Kraków brewery Strzelec is scrambling to find zł. 45 million ($10.9 million) to cover its purchase of the Brok brewery earlier this month. But Strzelec is unlikely to raise the money through its planned share issue, which is priced too high to draw investors, market analysts said.
Strzelec saved Brok from collapse by purchasing its zł. 95 million ($22.6 million) debts to Bank Pekao for a bargain zł. 45 million ($10.7 million) at the start of September. The issue has attracted interest from investors, but Strzelec has little hope of plugging the cash hole created by the purchase with its share issue since its stock price has fallen significantly below the offer price.
"If the company doesn't decide to change the price there is a rather small probability of placing this issue since it is about 50% higher than the (brewery's) current stock market price," said Marek Świętoń, a financial market analyst at ING Investment Management Poland.

The purchase of Brok offers substantial benefits for Strzelec, according to the brewery's president Adam Brodowski, who announced that after technical and organizational restructuring the Strzelec - Brok group will control 4% of the Polish market.
Analysts agree. The Brok investment is far more likely to benefit Brodowski than his 24% shareholding in Lublin brewery Perła, whose majority owner Hubert Gierowski has consistently blocked plans to merge Strzelec and Perła.
"It's a major chance for them to grow after their unsuccessful investment in Perła where they can't really get ahold of the reins," Sikorska said. "If they manage it, they will have bought the cheapest market share since the start of the privatization of the Polish beer sector."

Borowski's deft bargaining with Pekao, which gained Strzelec manufacturing assets with an estimated value of zł. 53 million ($12.6 million), will ramp up Strzelec's fourth-quarter financials, Świętoń said. "If the transaction is finalized, Strzelec will have zł. 9.5 million ($2.3 million) of extraordinary gains to be booked in the fourth quarter," Świętoń said. "This would be good for both the companies."
According to Sikorska, the deal also involved a lot of luck on Borowski's part, since his negotiations with Pekao coincided with the collapse of the Szczecin Shipyard, which raised the bank's anxiety about bankruptcy risk. "The collapse of the shipyard was almost like a knife to the throat of Pekao," Sikorska said. "It nearly found itself burdened with Brok's debts and having to run a brewery as well as a shipyard."
If the share issue fails, Strzelec can defer its cash problems until next year thanks to an arrangement with its shareholder Kredyt Bank, but Świętoń is convinced that Strzelec will step down the issue price.
"They have a promise from Kredyt Bank to issue short term debt securities worth zł. 45 million so the company can find alternate financing," Świętoń said. "Problems could arise a year from now if the company has no cash to repay the securities issued by Kredyt Bank."