WSiP closes another chapter
Piotr Chudzik, an investment banker at Deutsche Bank Global Corporate Finance, is a big critic of the previously botched privatisations of Wydawnictwa Szkolne i Pedagogiczne (WSiP), especially since the government's attempts to sell the educational publisher recently foundered for a third time.
"If the tenders had been open to all investors and had been transparent from the beginning, WSiP would have been privatised a long time ago, and this would have been only an advantage to its mission."
His view is shared by another investment banker, who preferred to remain anonymous.
"Under the pretence of preserving national interests, the interests of certain lobbies were preserved," he said.
Poland's number-one publishing house has been awaiting privatisation for three years. It remains under the ownership of the state treasury, which has time and again demonstrated an inability to select a viable buyer. The problem is not in the lack of suitors for the school textbooks publisher, but rather their large number, coupled with the fact that making a final choice has proved highly sensitive.
In the wake of the three unsuccessful tenders, the treasury ministry announced that the likeliest way of proceeding with the WSiP privatisation would be through a public offering. But before this can happen - according to information from sources close to the deal, which has yet to be confirmed by the treasury - WSiP will be obliged to buy a number of smaller publishing houses, the majority of which are heavily indebted. These include KAW, Wiedza Powszechna, PiW, PiWRL and Wydawnictwo Muzyczne, along with school equipment producer Cezas and Dom Książki, a small chain of bookstores.
"It is not our task to decide on our future, this rests with our owner, and that is the treasury," said Jan Rurański, WSiP's president, who declined to make further comments. Jarosław Kusto, WSiP's financial director added that the company did not have any official information about the consolidation, but would be happy to know which companies are being considered so that a floatation strategy could be worked out.
Meanwhile, WSiP has successfully proved itself to be in excellent financial health. The company has seen its net profit grow by 35% to €6 million (zł. 26.4 million), even though sales have grown by only 5%. Cash reserves are also impressive with €38.9 million (zł. 170 million) at the end of 2002.
"The cash stock has certainly shrunk," Kusto said. "Don't forget we are earning money only during three months and we must survive on this for the rest of the year."
Under the management of Rurański, who took over WSiP two years ago, the company started to claw back its market position, having lost ground following the market's liberalisation. Currently, according to the firm's own estimates, it has control of 32%-33% of the educational books market. Its biggest competitor, Nowa Era, even after taking over Arka, still controls less than 15% of the market. If there was any doubt about the continuing attraction of WSiP, it is dispelled by the number of companies lining up to take it over.
The treasury organised the first tender for WSiP in 2000. At the time, the regulations did not exclude the participation of foreign investors. British publishing house Pearson, owner of not only the Financial Times Group, but also leading publishers Longman, Simon Schuster and Penguin Putnam, and which is also active in the field of educational publishing, was declared the winner. But the treasury, without giving any reason, then cancelled the tender, although insiders speculated that the price proposed by Pearson - €57.2 million (zł. 250 million) - was considered low.
In 2001, a second bid was organised, with only Polish companies appearing on the list of hopefuls. Agora, publisher of Gazeta Wyborcza and also the owner of numerous radio stations and magazines, locked horns with two consortiums from the publishing sector: Polskie Książki Edukacyjne led by Gdańsk publisher Marek Rożak, and Polskie Towarzystwo Edukacyjne, represented by Wojciech Bagan, president of Uniprom printing house, one of the biggest in the country. Bagan won the tender, but failed to come up with the necessary funds - €76.6 million (zł. 334.5 million) for 85% of WSiP shares which, in the opinion of the experts, valued the company at well above its true worth. So the tender was cancelled again.
A third attempt to privatise WSiP was announced last year. Observers were left in no doubt as to who was going to win when a small but aggressive publishing house, Muza, announced its interest. According to experts, Muza's strongest asset was one of its founders, Włodzimierz Czarzasty, a leading member of the SLD and secretary of the National Radio and Television Council (KRRiTV), who still holds a 7% stake in Muza. According to rumours, Czarzasty was also a close friend of then treasury minister Wiesław Kaczmarek.
The course of events that ensued proved the suspicions of all those who saw Muza as a dark horse in the race. Muza was short-listed along with Agora and another publisher active in the educational field, MAC Edukcja. In January this year the ministry announced it was going to conduct exclusive negotiations with Muza. According to unconfirmed information published by Rzeczpospolita, the ministry had even got as far as approving the privatisation contract. Muza was to receive 51% of shares, at a cost of €40 million (zł. 175 million), which would be provided by venture capital firm Emerging Europe Capital Investors. In addition, 34% of WSiP shares were supposed to be made publicly available.
Journalists smelt a scandal over this example of a small fish swallowing a whale.
"It's not unusual for a small company to take over a big one, so long as it has a good strategy," said a financial analyst who asked not to be named. "But here, since the plans remain a commercial secret, it's open to speculation what is really going on."
But no contract has ever been signed. According to observers, one of the reasons for this is that Włodzimierz Czarzasty, Muza's biggest asset, suddenly became its weakest point. The name of WSiP was mentioned several times during early testimony to the parliamentary commission investigating the Rywin affair, and it was revealed that Czarzasty played a key role in having regulations included in the draft of a new media law that were disadvantageous for Agora.
Amid accusations by Agora representatives that Czarzasty was the mastermind behind a corruption plot, the treasury seemed to have little alternative other than to cancel the third tender. The Business Journal sought clarification from the ministry's press office concerning issues connected with the WSiP privatisation, but failed to receive any response.
Former treasury minister Wiesław Kaczmarek, who was responsible for drawing up the tender, also declined to comment on the decision to annul the tender, saying he was not aware of the details of the final offer.
And all Zbigniew Bąk, Agora board member responsible for new projects, would say regarding the tender and the offer submitted by Agora was, "We have decided not to make any comments on this matter while the commission investigation is underway. Maybe in six months."
But according to a market insider who asked to remain anonymous, the entire matter was hushed up because of the Rywin affair.
"No one wanted to be accused of corruption, and that is why the ministry decided to back out of the deal," he said.
Muza president Marcin Garliński is very critical of the decision. He is convinced that the treasury made a mistake, and believes the conditions offered by Muza were highly favourable.
"It's a mistake," he said. "Carrying out the transaction on the stock market doesn't make any sense. They have no clue about the risks connected with a public offer."
He also believes that investors would take into consideration factors that would lower the stock value of the company. He cited the fact that WSiP is currently involved in a court case concerning the building that has until recently housed the company's main office. If the court rules in favour of the plaintiff, Hubert Gierowski, the company stands to lose up to €22.9 million (zł. 100 million).
The company could then further suffer from an unfavourable demographic trend, as the number of school-age children declines. Another factor is that the effects of educational reform four years ago that required the replacement of vast numbers of school textbooks will soon no longer be felt, exacerbated by the fact that a flood of second-hand books will be hitting the market.
WSiP is diversifying its offer to offset the impact of such factors. Another way of strengthening its position is through acquisitions, a strategy which WSiP expects will increase its market share by 3% this year, although Kusto declined to specify what exactly would be purchased.
In effect, by considering a public offering for WSiP, the treasury is admitting defeat, as it will have no control over who buys the company's shares.
"All that the treasury appears to have achieved is to waste an enormous amount of time and money," said one observer, who claimed this was the opinion of many close to the privatisation.
"If the tenders had been open to all investors and had been transparent from the beginning, WSiP would have been privatised a long time ago, and this would have been only an advantage to its mission."
His view is shared by another investment banker, who preferred to remain anonymous.
"Under the pretence of preserving national interests, the interests of certain lobbies were preserved," he said.
Poland's number-one publishing house has been awaiting privatisation for three years. It remains under the ownership of the state treasury, which has time and again demonstrated an inability to select a viable buyer. The problem is not in the lack of suitors for the school textbooks publisher, but rather their large number, coupled with the fact that making a final choice has proved highly sensitive.
In the wake of the three unsuccessful tenders, the treasury ministry announced that the likeliest way of proceeding with the WSiP privatisation would be through a public offering. But before this can happen - according to information from sources close to the deal, which has yet to be confirmed by the treasury - WSiP will be obliged to buy a number of smaller publishing houses, the majority of which are heavily indebted. These include KAW, Wiedza Powszechna, PiW, PiWRL and Wydawnictwo Muzyczne, along with school equipment producer Cezas and Dom Książki, a small chain of bookstores.
"It is not our task to decide on our future, this rests with our owner, and that is the treasury," said Jan Rurański, WSiP's president, who declined to make further comments. Jarosław Kusto, WSiP's financial director added that the company did not have any official information about the consolidation, but would be happy to know which companies are being considered so that a floatation strategy could be worked out.
Meanwhile, WSiP has successfully proved itself to be in excellent financial health. The company has seen its net profit grow by 35% to €6 million (zł. 26.4 million), even though sales have grown by only 5%. Cash reserves are also impressive with €38.9 million (zł. 170 million) at the end of 2002.
"The cash stock has certainly shrunk," Kusto said. "Don't forget we are earning money only during three months and we must survive on this for the rest of the year."
Under the management of Rurański, who took over WSiP two years ago, the company started to claw back its market position, having lost ground following the market's liberalisation. Currently, according to the firm's own estimates, it has control of 32%-33% of the educational books market. Its biggest competitor, Nowa Era, even after taking over Arka, still controls less than 15% of the market. If there was any doubt about the continuing attraction of WSiP, it is dispelled by the number of companies lining up to take it over.
The treasury organised the first tender for WSiP in 2000. At the time, the regulations did not exclude the participation of foreign investors. British publishing house Pearson, owner of not only the Financial Times Group, but also leading publishers Longman, Simon Schuster and Penguin Putnam, and which is also active in the field of educational publishing, was declared the winner. But the treasury, without giving any reason, then cancelled the tender, although insiders speculated that the price proposed by Pearson - €57.2 million (zł. 250 million) - was considered low.
In 2001, a second bid was organised, with only Polish companies appearing on the list of hopefuls. Agora, publisher of Gazeta Wyborcza and also the owner of numerous radio stations and magazines, locked horns with two consortiums from the publishing sector: Polskie Książki Edukacyjne led by Gdańsk publisher Marek Rożak, and Polskie Towarzystwo Edukacyjne, represented by Wojciech Bagan, president of Uniprom printing house, one of the biggest in the country. Bagan won the tender, but failed to come up with the necessary funds - €76.6 million (zł. 334.5 million) for 85% of WSiP shares which, in the opinion of the experts, valued the company at well above its true worth. So the tender was cancelled again.
A third attempt to privatise WSiP was announced last year. Observers were left in no doubt as to who was going to win when a small but aggressive publishing house, Muza, announced its interest. According to experts, Muza's strongest asset was one of its founders, Włodzimierz Czarzasty, a leading member of the SLD and secretary of the National Radio and Television Council (KRRiTV), who still holds a 7% stake in Muza. According to rumours, Czarzasty was also a close friend of then treasury minister Wiesław Kaczmarek.
The course of events that ensued proved the suspicions of all those who saw Muza as a dark horse in the race. Muza was short-listed along with Agora and another publisher active in the educational field, MAC Edukcja. In January this year the ministry announced it was going to conduct exclusive negotiations with Muza. According to unconfirmed information published by Rzeczpospolita, the ministry had even got as far as approving the privatisation contract. Muza was to receive 51% of shares, at a cost of €40 million (zł. 175 million), which would be provided by venture capital firm Emerging Europe Capital Investors. In addition, 34% of WSiP shares were supposed to be made publicly available.
Journalists smelt a scandal over this example of a small fish swallowing a whale.
"It's not unusual for a small company to take over a big one, so long as it has a good strategy," said a financial analyst who asked not to be named. "But here, since the plans remain a commercial secret, it's open to speculation what is really going on."
But no contract has ever been signed. According to observers, one of the reasons for this is that Włodzimierz Czarzasty, Muza's biggest asset, suddenly became its weakest point. The name of WSiP was mentioned several times during early testimony to the parliamentary commission investigating the Rywin affair, and it was revealed that Czarzasty played a key role in having regulations included in the draft of a new media law that were disadvantageous for Agora.
Amid accusations by Agora representatives that Czarzasty was the mastermind behind a corruption plot, the treasury seemed to have little alternative other than to cancel the third tender. The Business Journal sought clarification from the ministry's press office concerning issues connected with the WSiP privatisation, but failed to receive any response.
Former treasury minister Wiesław Kaczmarek, who was responsible for drawing up the tender, also declined to comment on the decision to annul the tender, saying he was not aware of the details of the final offer.
And all Zbigniew Bąk, Agora board member responsible for new projects, would say regarding the tender and the offer submitted by Agora was, "We have decided not to make any comments on this matter while the commission investigation is underway. Maybe in six months."
But according to a market insider who asked to remain anonymous, the entire matter was hushed up because of the Rywin affair.
"No one wanted to be accused of corruption, and that is why the ministry decided to back out of the deal," he said.
Muza president Marcin Garliński is very critical of the decision. He is convinced that the treasury made a mistake, and believes the conditions offered by Muza were highly favourable.
"It's a mistake," he said. "Carrying out the transaction on the stock market doesn't make any sense. They have no clue about the risks connected with a public offer."
He also believes that investors would take into consideration factors that would lower the stock value of the company. He cited the fact that WSiP is currently involved in a court case concerning the building that has until recently housed the company's main office. If the court rules in favour of the plaintiff, Hubert Gierowski, the company stands to lose up to €22.9 million (zł. 100 million).
The company could then further suffer from an unfavourable demographic trend, as the number of school-age children declines. Another factor is that the effects of educational reform four years ago that required the replacement of vast numbers of school textbooks will soon no longer be felt, exacerbated by the fact that a flood of second-hand books will be hitting the market.
WSiP is diversifying its offer to offset the impact of such factors. Another way of strengthening its position is through acquisitions, a strategy which WSiP expects will increase its market share by 3% this year, although Kusto declined to specify what exactly would be purchased.
In effect, by considering a public offering for WSiP, the treasury is admitting defeat, as it will have no control over who buys the company's shares.
"All that the treasury appears to have achieved is to waste an enormous amount of time and money," said one observer, who claimed this was the opinion of many close to the privatisation.
