Uncertainties cloud corporate deals

Widespread political and economic uncertainty will likely put the brakes on several mergers and acquisitions in the coming months.
By : Jeffrey Sparshott

   An uncertain world and national economies will affect mergers and acquisitions (M&A) in Poland this year, and corporate takeovers, big and small, should continue at a slower pace even as industry sectors consolidate and international investors look to Central and Eastern Europe as a safe haven, according to M&A specialists.

   “We are definitely affected,” said Margaret Dezse, Central and Eastern European corporate finance leader for PricewaterhouseCoopers (PwC), and author of the consulting firm’s 2000 Central European Mergers and Acquisitions Survey. “We are not living in a vacuum, we are living in a global economy.”

   The total value of mergers and acquisitions will stagnate or slightly decrease due to uncertainties on the global markets, she said in an interview with the Budapest Business Journal. The deteriorating world economies have forced downward revisions on economic growth and undercut national equity markets. Fiscal and monetary difficulties in Poland have added to the problems, leaving the country with the lowest gross domestic product (GDP) growth forecast in Central Europe and a stock market that has shed roughly 30% since Jan. 1.

   “Slowing down creates a limited appetite for acquisition and investments, and does affect, for sure, Polish companies,” said a Warsaw-based investment adviser who asked not to be named. “We are facing a pretty difficult situation internationally. If it’s not necessary to invest right now I would prefer to sit on money rather than approach new investments.”

   Nevertheless, deals already in the works and government-led privatizations – especially in the energy and oil sectors – should see some significant activity in the coming months, he said.

   Big deals in services and manufacturing sectors announced by the outgoing government underscore the continuing allure of Polish acquisitions for foreign companies. While the pace of government sell-offs may change once the Democratic Left Alliance (SLD) takes control of state assets, Poland-based private-sector firms will continue to look outside national borders for capital, sector specialists said.

   “I think M&A activity will continue as there are still companies needing financing or a strategic investor to make a ... change in its business development or those looking to sell non-core assets perhaps because they are doing acquisitions abroad,” Dezse said. “Business life will go on as usual, although valuations and prices on transactions may likely decrease in certain industries.”

   The outgoing Solidarity Election Action (AWS) government this month signed off on the sale of a large chunk of the country’s largest insurer, Powszechny Zakład Ubezpieczeń (PZU). In two deals worth zł. 4.3 billion ($1.02 billion), pan-European insurer Eureko will increase its stake in PZU to control two-thirds of the firm, wrapping up an investment begun in 1999. In banking, Bank Przemysłowo-Handlowy (BPH) and Powszechny Bank Kredytowy (PBK) announced a Ä70 million merger late last month, a deal spurred by the merger of foreign parents as the banking industry consolidates. In the manufacturing sector, aluminum producer Kęty is one of several firms looking for an outsider to take a strategic stake.

   Last year, Poland saw five of the 10 largest merger and acquisition deals in Poland, the Czech Republic and Hungary, including Deutsche Telekom’s $1.1 billion purchase of MediaOne’s Polish holdings, Citigroup’s $778 million acquisition of Bank Handlowy, Vivendi’s $581 million stake in power and telecoms group Elektrim, Banco Comercial Portugues’ $262 stake in Big Bank Gdański and Telia’s $250 million acquisition of fixed telecom line operator Netia Holdings, according to a PwC’s survey.

   The number of mergers and acquisitions in Poland, the Czech Republic and Hungary was up by 33% last year and had a market value of about $17 billion, the report said.

   The April report projected relatively strong M&A activity through 2001 as energy, transportation, telecommunications and postal-service privatizations followed, as the region’s economies prepare for European Union (EU) accession. EU-related factors also lower the cost of capital and increase transparency, attracting investors, the report said.