Property Watch
By : Greg Goodale
The future of construction company Mostostal Warszawa (http://www.mostostal.waw.pl/) looked uncertain last week as a deadlock over voting rights soured relations between the company's two main shareholders, Polish conglomerate Elektrim (http://www.elektrim.pl) and Spanish investment group Acciona (http://www.acciona.es).
At Mostostal's annual general shareholders' meeting (AGM) in April, Acciona was barred from voting after Elektrim's representative, Robert Butzke, initiated a boardroom revolt.
The action has led to bitter recriminations as the two companies have now gone ahead with their own agendas. For the past two weeks each has held its own AGM, with two competing supervisory boards, management boards and chairmen elected by the divided shareholders.
Mostostal chairman Neil Balfour questioned Butzke's motivations. "Having unilaterally decided that he can disenfranchise a 49% shareholder, he then allowed himself the privilege of allowing Elektrim to vote their shares," Balfour said. "If there is a voting trust between a 49% shareholder and a 28% shareholder, presumably both should have been disallowed."
Balfour said Butzke's moves against Acciona were illegal. "I can't wait to see what a judge will make of those particular antics," he said. "(Butzke) has exposed himself to phenomenal risk, and he is going to find himself wrapped up in court for a very long time. This is scandalous behavior, and he was driven to it by Elektrim."
Trouble brewing
Balfour said the reason for the rift is Elektrim's plans for a Mostostal buyout. He said Elektrim missed its chance to sell last December, leaving it bound by a trust agreement to keep its stake until June 2001. After this, it would have to give Acciona preferential right to buy its shares at market price.
"Soon after I became president of this company, Elektrim started to apply more and more heat, basically by blocking the strategy that Acciona had devised, and which I was trying to implement, really for nuisance value, to force Acciona into buying them out," Balfour said. "This led to bad blood."
He said Acciona made a share offer, in December 1999, of zl. 14 million ($3.5 million), 30% over the current market trading value. "They failed to consolidate that into a full offer because there was not enough trust and so Acciona had only one option, which was to go to the market, leaving Elektrim to decide what to do with their 28%," he said.
Balfour said the lack of trust that stopped the deal was caused by excessive pressure from Elektrim. "Acciona felt Elektrim was anxious to force it into a full-blooded bid for the company," he said.
But Elektrim's vice-president, Jacek Walczykowski, said Butzke was within his rights to bar Acciona from voting. "Acciona was denied the right to participate (because it) announced a tender (for Mostostal's shares) and did not fulfil the requirements of the Amended Act on Public Trading and has not received the required permit from the Securities and Stock Exchange Commission (KPWiG)," Walczykowski said. "Acciona has not fulfilled the regulations of the company code."
Walczykowski said Elektrim was only looking after its shareholders' interest. "Elektrim has not responded to Acciona's tender regarding the 20% of Mostostal shares because we believe that the value of the company is much greater than the offered price," he said.
Balfour's dismissal
On April 6, the Mostostal supervisory board attempted to dismiss Neil Balfour, but his sacking was deemed invalid and not voted on by a full supervisory board, according to Juan Ignacio Entrecanales, head of the supervisory board supported by Acciona. "Neil Balfour was never dismissed," Entrecanales said. "Elektrim asked for his dismissal without any sound reason and the statutory requirements to adopt such a resolution were never fulfilled."
Balfour also said Elektrim wanted to replace him at Mostostal with a Polish president. He said the chair and vice-chairman of Elektrim, Barbara Lundberg and Walczykowski, saw him as a threat to their positions in the company.
"During the summer of last year, Acciona was extremely unhappy about the performance of the current management of Elektrim." Balfour said. "As I sat on the supervisory board of Acciona Polska they asked me to hold discussions with members of the supervisory board and with institutions in London about the situation in Elektrim.
"It is clear that a lot of the discussions were percolating back to the management at Elektrim, who felt that I was plotting to oust them."
Balfour said Lundberg and Walczykowski commissioned an internal Mostostal report that formed the basis of an article by the Gazeta Wyborcza daily, alleging Balfour's involvement in stealing from Mostostal by urging it to invest in property owned by Polska Trust, a company in which Balfour is a shareholder. "This document, which was unprofessionally prepared and contained huge inaccuracies, somehow found its way into the press."
He denied accusations that he's been stealing, and said he made a full disclosure of all his business interests when he became a member of the supervisory board of Mostostal in December 1999 and to the executive committee of the board set up to examine the Polska Trust deal. "I have a clear conscience about it," Balfour said. "I regret it because of the notoriety it has brought, but it is an extremely good project on which this company will make a great deal of money."
Walczykowski, however, said Elektrim's decision to dismiss Balfour was not motivated by press allegations. "Elektrim's position in the Mostostal case is not influenced by the negative media coverage, and it is not an attempt to play 'personal games,'" he said. "Elektrim's decision in the case of Mostostal is based on the assessment of the company's performance and financial results achieved during the last eight months, when the company was managed by Mr. Balfour."
Bargaining positions
Last week, Robert Butzke announced his conditions for the resolution of the AGM deadlock in a Polish business daily, Puls Biznesu. He said agreement between the two sides would involve the dismissal of Neil Balfour, the purchase of Elektrim's stake in Mostostal at zl. 17-zl. 18 per share or the sale of Acciona's stake in the company to Elektrim.
Mariusz Pawlak, a broker at SG Securities, said that the apparent deadlock between the two shareholders means that only a court can decide which board of directors will prevail. "This will take place when the two competing groups of shareholders submit applications to register their supervisory boards," he said.
