Stypulkowski:
By : Malgorzata Halaba
On Dec. 9, shareholders of Bank Handlowy will decide the fate of a proposed merger with BRE Bank, a move that would create the third largest bank in Poland in terms of total assets. Handlowy CEO Cezary Stypulkowski has spent four months trying to get shareholders to sign on to the merger, but has met significant opposition from two key investors the Treasury Ministry and state-owned insurer Powszechny Zaklad Ubezpieczen (PZU). The Treasury Ministry owns about 12% of Handlowy, while PZU holds about 3% but controls a further almost 25% through convertible bonds. Both shareholders protested the merger's proposed share-swap ratio of 2.6 Handlowy shares for one BRE share. Their opposition prompted the two banks to later change the ratio to 2.4 to one, but the two parties are still not happy. PZU and the Treasury Ministry could block the merger if they convince investors with at least 10% of Handlowy's shares to reject the motion, as the bank needs 75% to push the deal through. The WBJ's Malgorzata Halaba last week talked to Stypulkowski about the upcoming shareholders vote, mistakes made in communicating the goal of the merger to shareholders and consequences if the deal falls through. Following is a translated, edited version of their conversation.
Q: I know I won't be very original with this question, but what's going to happen on Dec. 9? Will your merger with BRE Bank go through?
A: A man like me can only promise that we will do our best. We've taken certain efforts, and we will try to make it happen. In my opinion the probability is quite high, although right now it's difficult to say what will be the position of all shareholders. I have grounds to believe that, except for the Treasury Ministry, Powszechny Zaklad Ubezpieczen (PZU) and their adviser (Nomura International), there will be nobody else against.
Q: Why do you think PZU and the Treasury Ministry are so opposed to this deal?
A: Well My only interpretation is that people make such an enormous effort when they want to gain control. In Handlowy's case, it would mean re-nationalization. Frankly, to explain the reasons would be rather difficult. I can't find any arguments.
Q: You said that you were doing your best to make sure this merger happens. Does that involve meetings with (PZU President) Wladyslaw Jamrozy and (Treasury Minister) Emil Wasacz?
A: I saw Jamrozy last Monday. What's most surprising is that they lowered their holdings in Handlowy to 3%. (PZU previously publicly said it had 8% of Handlowy). It's completely inconsistent. One day they say they have 8%, then they say they have 5%, now they have only 3%. I really don't know what they are doing with the shares. I can only suspect that this is something not quite in line with the accepted standards of the capital market ... To me it's a collision of a very transparent presentation of the deal to investors with something very unclear.
Q: While talking to Jamrozy, did you get the impression his position softened?
A: He is an enigma to me.
Q: How about Wasacz?
A: I haven't met (Treasury) Minister Wasacz recently. We had a meeting when Handlowy presented the terms of the merger and how the parity rate had been calculated. I can only say that Minister Wasacz's position hasn't changed.
Q: In a press conference that Handlowy held in New York while conducting meetings with investors, you almost apologized for the fact that you did not consult PZU and the Treasury Ministry before announcing this merger
A: I said that, from today's perspective, I see it as a kind of faux pas. But again, the issue is not that simple. On the one hand, when Handlowy's convertible bonds were transferred to PZU, we learned about it from the press. (The Treasury Ministry handed the convertible bonds, equal to almost 25% of Handlowy's shares, to PZU). The Treasury Ministry (during the privatization) declared it would be a passive investor. It doesn't happen very often that, after privatization, the Treasury Ministry begins to play an active role in an institution. Moreover, it doesn't often begin to buy shares in a private institution. This is very unique. Such behavior by the Treasury Ministry becoming an active player on the market is something that should raise protests, in spite of the outcome. Again, we did everything we could do. The only thing we could have done better is to have informed the Treasury Ministry about the planned merger earlier.
Q: At this stage, are you able to say what other mistakes have been made while working on the merger?
A: Maybe one of the biggest mistakes was that I really didn't anticipate any opposition to the merger. I was so sure that this deal was attractive, so beneficial both for the shareholders and the market, that for me (the opposition) was a big surprise. Right now I can say this was something we should have predicted. But on the other hand, when you are talking about a deal that guarantees double-digit earnings per share, one that creates the strongest banking organization in the region in terms of capital but also in terms of organizational skills well, it's difficult to question that.
Q: What will happen if the merger doesn't go through? What's your contingency plan?
A: I said once that even after an atomic bomb, there will still be some life. We would have no other choice but to go through some deep restructuring and to implement an organic growth strategy. Not having a merger won't result in any dramatic changes, regardless of what some people might think. About half of the shareholders will remain closely related to the core investors (JP Morgan, Swedbank and Zurich Financial Services). It's not like you can take over this bank when and how you wish. Those who opposed (the merger) will still be in the minority.
Q: On many occasions both you and BRE Bank's President Wojciech Kostrzewa stressed that this was a merger between two equal partners. Don't you actually have more to lose?
A: The nature of this deal is such that it's a deal between two equal partners, at least we planned for it to be like this. But in a sense, yes, I share your opinion. To start with, BRE Bank has a more 'durable' shareholding structure. It has a strategic investor (Germany's Commerzbank) and, unlike Handlowy, doesn't need a consensus with other shareholders. That's a very important difference. Handlowy is an institution that operates on the market without any assistance from the outside. We are reminiscent of similar Western institutions with a dispersed shareholding structure almost 90% of our shares used to be owned by private investors. So for us, the dialogue with investors, transparency and so on are very important things. Our shareholders can express their support for the deal in many different forms: They can sell or buy and that means constant changes in the ownership structure. When Handlowy's privatization was structured, the idea behind it was the following: There is an anchor in the form of stable investors, so everybody knows that one just can't do whatever he wants. That was one element. The second element was that we want to develop. We didn't succeed with (other banking) privatizations (Handlowy bid in the sale of Pekao), and at the same time we had this transfer of Handlowy's convertible bonds to PZU Of course, all that seriously undermined Handlowy's position, my own including.
Q: Undermined to such an extent that BRE is acting as a stronger partner?
A: I think that it's a rather natural perception. On one hand, there is a new shareholder, Commerzbank, which defined the parameters of its investment. And all the turmoil is around Handlowy, not around BRE. That's reality.
Q: What's the perception of the merger among Handlowy employees? Do you face strong opposition from this side, too?
A: With such deals there is one principle: Time is the devil, speed is God. Considering the external opposition to the deal, its nature and aggressiveness ... well, things are difficult. People get the newspaper in the morning, read it and what they see is problems and conflicts. At the same time, with deals like this, internal communication is limited. There are a lot of subtle issues that require confidentiality. As a result, the situation becomes unstable. I think people have mixed feelings: On the one hand, part of them realize what challenges the banking sector faces that things have changed and that such a deal can help in meeting these challenges. I remember that after the merger was officially announced, a director of one of the key departments said: "We will have a dream team." This is exactly what would happen to the department that he heads. On the other hand, there will be casualties. I like what Kostrzewa said on one occasion that both BRE and Handlowy's employees are in a relatively good situation. The potential layoffs will take place when the market is still able to absorb this type of knowledge and expertise. Because in a short time the market will have to deal with the employees of (other privatized institutions) Pekao, Powszechna Kasa Oszczednosci (PKO BP), Bank Zachodni and other banks.
Q: A lot of people have already left Handlowy?
A: No, I wouldn't say a lot. But yes, several people have left. Well, if people have considered leaving in the past, then it is much easier to make that decision in a moment like this. In some cases, I regret these resignations, in others well, it would happen anyway, due to future restructuring. Additionally, such processes are quite natural in areas like banking.
Q: Will you resign if the merger is blocked?
A: Handlowy has its shareholders. It's only natural that the shareholders represented in the supervisory board will make certain decisions. Unsuccessful deals have their consequences. In such a case the shareholders will ask you why the deal failed. And sometimes you can't provide a simple answer. True, recently Handlowy was involved in two deals, (the privatization) of Pekao and BRE. In the first case, we were disqualified. It's a pity that nothing came out of the Pekao deal, because it was a good deal. But due to reasons I don't want to discuss our chances were small, or not big enough. With the present deal, we face opposition that we can't explain. One can always say we are not lucky. But your luck is also an element of your business efficiency.
Q: The shareholders meeting is in a few days, so what are you doing right now to prepare for it?
A: Some talks will continue until the very last moment. We won't give up on our attempt to build a sort of consensus. But since PZU declared that they have decreased their holding to 3%, I really don't know to whom we should talk.
