CEE companies privatised through the public
markets
Overview
Individual company track records
MOL / PKN
Handlowy / Pekao
Richter / OTP
Pliva / KGHM
Cesky Telecom / TPSA / Matav
Case Studies
Gedeon Richter anti takeover mechanism
Bank Handlowy w Warzsawie independence through
tri-partite structure
Conclusions
Criteria for success
Lessons for the Czech Republic
A Czech solution?
Credentials

3
What is special about a public markets
transaction?

It is NOT a strategic sale to a trade buyer
who would seek to control the board, management
and the business directly
who might be expected to bring in management,
technological and business expertise
Neither is it a sale to a private equity investor
who might also
seek management control
bring in expertise
plan on a medium term exit
Including though the public markets

Offer for sale on the stock exchange to financial
investors who
make portfolio investments, spreading their risk
across a variety of companies shares
invest relatively small amounts of their
portfolio in relatively small shareholding
percentages in any one company
and so have no time, interest or ability on their
own to influence or control the company in
question

Two categories of investors
retail - important for liquidity
they have 2 votes
- vote as a shareholder at general
meetings of the company
- vote as a member of the public in
a general election for the new government
(important to remember in privatisations)

institutional
- mostly global emerging markets and dedicated
emerging European funds for CEE stocks plus
hedge funds
- larger stocks can also attract general
European and global funds

4
Initial Public Offerings in CEE since 1990
5
Initial Public Offerings in CEE since 1990
6
Initial Public Offerings in CEE since 1990

Privatisation by IPO is clearly normal in CEE
Maintaining independence has been possible, abuse
rare
IPO can be done after or before strategic sale
Overall experience has been positive
The process has driven the development of stock
markets across the region
Liquid, transparent markets
Spread of popular share ownership
Facilitated pension reform and the development of
private pension funds

7
MOL and PKN share price since privatisation
80
70
60
50
MAR 1998 SPO
FEB 2004 ABB

PKN Orlen
Regional champion?

40
(USD)
MAY 1997 SPO
30
20
10
0
28/11/98
28/11/99
28/11/00
28/11/01
28/11/02
28/11/03
28/11/95
28/11/96
28/11/97
JUN 2000 SPO
MOL

MOL
Regional champion?
10 voting limits
Gas prices

8
Bank Handlowy and Pekao share price since
privatisation

Bank Handlowy
Independence on privatisation
IPO
Strategic investor
Special convertible bonds
Citigroup
A real strategic investor
Not 100 owned
Keeping own name
Keeping listing

9
Richter, OTP share price since privatisation
MAY 1997 SPO
140

OTP
5 limit on (foreign) shareholdings 10 on
others
Strong management influence

120
100
80
NOV 1995 SPO
USD
60
40
30
20
25
0
20
OCT 1999 SPO
09/11/01
09/11/02
09/11/03
09/11/04
09/11/94
09/11/95
09/11/96
09/11/97
09/11/98
09/11/99
09/11/00
15
USD
OCT 1997 SPO
10
Gedeon Richter
5

Gedeon Richter
Shareholder protection measures/
anti-takeover mechanism 1995
Exchangeable bond 2004
Pharmaceutical reimbursement rates

0
10/08/95
10/08/96
10/08/97
10/08/98
10/08/99
10/08/00
10/08/01
10/08/02
10/08/03
10/08/04
OTP
10
Pliva, KGHM share price since privatisation
120
100
80
60
USD
40
20
12
0
10
25/01/98
25/01/99
25/01/00
25/01/01
25/01/02
25/01/03
25/01/04
25/01/95
25/01/96
25/01/97
8
6
USD
Pliva
4
2
0
18/07/97
18/07/98
18/07/99
18/07/00
18/07/01
18/07/02
18/07/03
18/07/04
KGHM
11
Cesky Telecom, TPSA, Matav share price since
privatisation
30

Cesky Telecom
Sale to strategic investors
Exit by strategic investors (ABB)

25
NOV 2003 ABB
ABB
20
DEC 2002 ABB
15
USD
10
5
0
14/03/95
14/03/96
14/03/97
14/03/98
14/03/99
14/03/00
14/03/01
14/03/02
14/03/03
14/03/04
Cesky Telecom

Matav
Management control ceded too early and too
cheaply
Deutsche Telekom/Ameritech
IPO
Public offerings difficult

TPSA
IPO
France Telecom

JUN 1999 SPO
12
Gedeon Richter anti- take over provisions
The Second Offering

Autumn 1995, 49m, State's shareholding reduced
below 50
premium of 20 to the IPO
awarded Best Offering in CEE in 1995 by
Euromoney
CA IB Joint Global Co-ordinator Joint
Bookrunner for all 3 Offerings of Gedeon Richter

Privatisation strategy

Gedeon Richter the sole major Hungarian
pharmaceutical company to be independently
floated on BSE
only small investors, no strategic partner
to develop as an independent company

Shareholder protection and take-over measures
protect against vulnerability to predators
gaining control
by stealth, i.e. with no prior notification of
the company or its shareholders
without having to acquire more than 50 1
share and
without having to pay to minority investors a
fair market price reflecting a premium for control

The Problem

To reinforce shareholder's rights in the
Company's Statutes, mimicking UK Takeover Code
notification of shareholdings at certain levels
starting at 10
25 limit on voting rights
mandatory take-over offer open to all
shareholders once a shareholding level above 25
is reached (at a premium of 50 to the average
market price and
acceptance from holders of at least 75 of the
total shares for the bidder to acquire control
over and exercise more than 25 of the voting
rights present at General Assembly

The Solution
The Reality

The reality. So long as APV held 251 they could
block a takeover
2004 EU Accession articles changed
Exchangeable Bond see David Jennison, JPM

13
Bank Handlowy w Warszawie SA Case Study
independence through tri-partite transaction
structure
Objectives

prevent single foreign shareholder acquiring
control
raise revenues (for planned state pension scheme)
core investor group to assist strategic
development
minimise Governments voting rights post-
privatisation
develop mass retail shareholder base

Government
Bank Handlowy
Common

Solution

Reconciliation

Tri-partite transaction structure to reconcile
objectives
public offering
core investor group sale
creation of non-voting convertible Special
Bonds

14
Bank Handlowy w Warszawie SA Case Study
independence through tri-partite transaction
structure

Institutional offering in Europe and US
PLN 838m (211m) proceeds
17.4x subscribed

Transaction

PLN 628m (194m)
139,766 investors
3x subscribed

Polish Retail
Offering

Core Investor
Sale

Group (24 fully diluted)
JP Morgan (12) - investment banking
Swedbank (6) - retail banking
Zurich Group (6) - insurance
Parallel auction

22.5m Special Bonds convertible into 24.3 of
Bank Handlowys share capital issued to State
can only convert once sold
in the event, destined for PZU rather than
pension scheme

Special Bonds

15
Bank Handlowy w Warszawie SA Case Study

First Polish parallel domestic and
international offering

price range set in advance
Polish retail investors subscribe at
Maximum Price in 3 week offer period
incentives price discount and preferential
allocation

Objectives Achieved

PLN 2bn (600m) raised for
Ministry of State Treasury
Special Bonds contributed to
Ministry of State Treasury
(c250m)
Re-awakening interest in the
markets of Central and Eastern
Europe

Time constraints

aim to close before KGHM (450m)
(starting one year after)
conclude core investor sale in parallel with IPO

16
Bank Handlowy Postscript Citigroup take-over in
2000
Transaction

90 share acquired
BUT

Tender offer

Conditions

75 maximum permitted by regulator
Citigroup obliged to sell down to 75 by end 2004
(extended?)
Bank Handlowy name to be preserved
Listing to be maintained

The most independent subsidiary of Citigroup in
the world?
NB Nick Kaufmann was Project Manager of the Bank
Handlowy IPO while he was at Schroders
17
Criteria for success for market privatisations in
CEE
Conclusions

Functional stock market
Liquidity
Transparency
Public confidence
"Public" fund managers and pension funds
Cash purchases vs vouchers
Political support
national interest
potential to be a national/regional 'champion
Clarity on shareholding policy
Leadership and vision of senior management
Clear business and equity strategy
Managing in the interests of all stakeholders,
particularly outside (foreign portfolio,
financial) investors
Focus on share price
cannot over-emphasise how important this is!

18
Lessons for the Czech Republic

Years of uncertainty over Government intentions
Continuing overhang
35 initial combined stake sufficient to attract
strategic investor and partners
Desirability of non strategic partner?
1990s Western telcos hot on CEE incumbents
2000s focus now on mobiles
If and when fixed line valuations fall, telcos
interest may increase
Enhance free cash flow yield
2000s Private Equity attracted by cash flow
will they invest for the future?
will service quality be maintained/improved?
they are only in it for one thing.

TPSA
CEE Telco privatisations
19
A Possible Czech Solution?

Unlike Hungary in 1990s, Czech Republic has a
secret weapon
its expensive but it works
its re-usable
it retains negative control
It can retain a premium
Czech 'takeover code' requires tender offers at
40, 50, 66 and 75
approved valuation
Minimum price
Opinion of targets Board
No limit on number of acceptances
Government can always keep 251 share as a
blocking minority
if monetisation desired, exchangeable bond to
raise money while retaining voting rights (cf
Gedeon Richter)
Limitation on voting rights to individual
shareholders?
Mitigate overhang
Sell tranche of say 20 25 now
Commit NOT to sell further shares for say 4 years
Enhance share price performance and retain
control premium

Conclusions
20
What sets CA IB apart
CA IB has

lead managed or co-lead managed more than 80 ECM
transactions and completed more than 300
corporate finance deals in Emerging Europe
completed more than 300 corporate finance
transactions in Emerging Europe
been ranked 2 for equity offerings in its core
markets since 2003
high quality and respected team of 19 equity
research analysts
quality of our research recognised by numerous
awards including Extel (2003 1 CEE Research)
and Institutional Investor (2004 1 research
teams in Poland, Hungary and Czech Republic)
a leading position in secondary market (sales and
trading) in the region (including GDRs) selling
to key institutional investors
depth of coverage in the region unmatched by any
other bank
a highly experienced team of more than 100
corporate finance professionals dedicated
exclusively to the region
long term client relationships, evidenced by
regular repeat business
been consistently recognised as a leading equity
house and advisor in Emerging Europe

No other investment bank has made the same
strategic commitment to CEE and its capital
markets
21
ECM credentials Hungary 1
Joint Global Coordinator and Joint Bookrunner in
the secondary offering of OTP Bank
OTP
MOL
Joint Global Coordinator and Joint Bookrunner in
the secodary offering of MOL
US162m
US315m
1999
1998
Joint Global Coordinator and Joint Bookrunner in
the secondary offering of OTP Bank
Joint Global Coordinator and Joint Bookrunner in
the secodary offering of MOL
US213m
US301m
1997
1997
Joint Global Coordinator and Joint Bookrunner in
the Initial Public Offering of OTP Bank
Joint Global Coordinator and Joint Bookrunner in
the Initial Public Offering of MOL
US230m
US89m
1995
1995
22
ECM credentials Hungary 2
Joint Bookrunner in the secondary offering of
Matav
Richter
Matav
US348 million
1999
Joint Bookrunner in the Initial Public Offering
of Matav
US1,040m
1997
23
ECM credentials - Poland
Joint Global Co-ordinator, Joint Bookrunner in
the secondary offering of PKN Orlen
Softbank
PKN
Financial Adviser and Global Co-ordinator of the
convertible bonds issue
US8m
US509m
2002
2000
Adviser to the majority shareholder of Softbank
on the increase of its Softbank stake
Co Manager in the IPO of PKN Orlen
PLN20m
US547m
2002
1999
Financial Adviser and Lead Manager of the
convertible bonds issue (Management Option
Programme)
Lead Manager, Bookrunner and Domestic Lead
Manager of the IPO of Softbank
N/A
1999
US38m
1998

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