Why Ruch needs to shed its image

The Treasury Ministry recently included Ruch in its tentative 14-strong list of state-controlled enterprises it wants to list on the WSE. But mismanaged privatisation schemes, a continuing legal struggle, falling market share and worsening public perception of rundown Ruch street kiosks will see that the state-owned enterprise finds it nearly impossible to join the exchange, say Warsaw-based investment bankers. The country’s largest press distributor must first settle its lawsuit with France’s Hachette Distribution Services (HDS) Polska, refurbish decades-old kiosks and urgently upgrade safety arrangements for franchisees as street crime rises. These are basic requirements to upgrade the company’s image, say Warsaw-based IPO promoters. In other words, Ruch has its hands full. Even though institutional investors are hungry for new equity names, will a dearth of appealing stocks on the WSE, Ruch must clean up its act or risk being among the sidelined as a credible public offering, bankers say. “Investors are increasingly asking about IPOs,” said one banker, who asked not to be identified. “But Ruch has a lot of unresolved issues that would make all the difference if they want to be successful. Before they do anything they should clean up Ruch.” For the former monopoly, this puts another hurdle in its way to privatisation under an SLD-led government that has been loathe to sell off anything, let alone a company that key ministers consider undervalued. At the core of its problems, the Hachette lawsuit against the Treasury Ministry claims that a 1997 privatisation contract between Ruch and its local subsidiary should be binding, even though the treasury abandoned it because the French company’s offer for 40% of the company was considered too low. “At present, it’s at kind of a deadlock,” said Andrzej Kacperski, chief executive of HDS, which operates the “Relay” and “InMedio” outlets in the country. The public offering or sell-off of Ruch shares will be impossible if there is no verdict, as the court has barred the treasury from embarking on rival transactions. What’s more, a leading banker warned that the treasury would receive an unfavourable surprise if it persisted in thinking an IPO would reap more. Hachette has for a long time considered the Ruch acquisition to be key to its Polish strategy. Kacperski said he had not developed a distribution business in expectation that the purchase of Ruch would bring all the required capacity. Recent reports describe Hachette as pursuing the lawsuit with “good will” and that it will consider a compromise in the context of the original contract. If new bids open up, providing the treasury decides against an exclusive public listing, Hachette would likely be up against media distribution competitors, Wydawcy Prasy and Kolporter. Miron Maicki, president of Ruch, refused to return numerous calls and e-mails seeking comment because he was “very busy,” according to his spokeswomen, who also declined to comment. But whatever the outcome of the litigation, the press distribution industry is highly competitive, meaning Ruch is in for sharper competition. Kielce-based Kolporter, as the largest private press distributor, will clearly not allow Ruch to boost its image and market share as a prelude to a WSE debut. It is concentrated on chipping away at Ruch’s roughly 40% share of all press distributions. And it has a taste for acquisitions, buying in August an 18% stake in Jard-Press, a Warsaw-based regional distributor, bringing Kolporter’s stake in the company to 100%. The net result is 20,000 nationwide retail sales outlets. “We observe the market all the time,” said Maciej Topolski, a Kolporter spokesman. “We do not exclude any scenario.” He added that in about two years he expects there to be just two distribution companies. Besides possibly losing out in the struggle for market share, Ruch’s market perception could impose a further damper on IPO plans. “There is good news on the demand side for equity,” said the investment banker, whose firm had been involved with Ruch in the past. But, he explained, investors vet more than just the balance sheet to make decisions. He said that rundown kiosks dating back to the 1970s play an important role in investors’ psyches. “Indeed it does matter, especially to see how it compares to its competition,” he said. “The rundown kiosks and poor working conditions definitely have a financial and psychological affect on investors. And it has an effect on the public’s perception of Ruch.” Kiosks needed to be safer. The most danger for attendants involves petty theft of cigarettes or phone cards, but can go as far as murder: In May, a woman was fatally shot in the throat as she worked in a Ruch kiosk on ul. Conrada in Bielany in the northeastern part of Warsaw. The alleged perpetrator, a 50-year-old man, made off with zł. 2,000. Also, a kiosk manager working alone at her outlet on ul. Nowolipki in Warsaw, refused to let the Business Journal into her kiosk to talk or discuss safety. “You could be anybody,” she said. Not everyone feels so vulnerable in Ruch’s tiny shacks, which often occupy unpopulated side roads. Some who rent from Ruch just want kiosk renovations and some changes in the company’s business strategy - all of which dovetail with the concerns of the financial community. Iwona Sewinińska, who rents the shop at the intersection of Al. Jana Pawła II and ul. Nowolipki in Warsaw, said she doesn’t feel much danger because she is on a main road. But she would like to see improvements to her building. Sewinińska pays Ruch, which delivers only the newspapers, zł. 900 per month to rent the kiosk. She must then hand over to Ruch 15% of all sales. She would like the shanty to get a facelift, which would be better for business. It has remained as it is since she started over six years ago. “Nowadays we have a recession; it’s difficult to get a better agreement,” Sewinińska said. “I have been looking for a better kiosk, a better location. It’s difficult, plus there are plenty people who would like the one I’m in now.” Yet, she doesn’t blame Ruch, even as her requests go unheeded. “I could go to another company and lose this location, but I am not sure it would be any better,” she said. Her concerns over mismanagement run deeper. “I would like to write a letter to Ruch pointing out the failures in their business strategy,” Sewinińska said. Directly across the street from her kiosk, she pointed out, Ruch installed a modern retail store. “So they placed a competitor next door to me,” she added. Also, she said, the leading press distribution company in Poland never delivers sufficient newspapers. “By midday I run out,” she said. Not only does it hurt her, but it also hurts Ruch. “They lose half a day’s business,” she said. “Customers go to competitors.” The conclusion of all this is simple, according to the banker: “It has some cleaning up to do in Warsaw ... as well as the countryside.”