Many majority company owners are moving to unload minority members before a new amendment goes into effect making the process more onerous.

Squeeze-outs jumped into the limelight this summer after a new law went into effect in early July allowing majority owners more leeway in removing minority shareholders from their businesses.

After just weeks on the books, minority shareholders bombarded Parliament with a series of complaints and the government relented, agreeing to toughen the squeeze-out law with an amendment that will take force in September.

Since its enactment, dozens of companies have called general meetings to order to vote on squeezing out minority shareholders.

"It's a hot opportunity and companies do not want to waste time," said Komercní banka analyst Lukás Dufek.

A Business Code amendment signed into law by President Václav Klaus in mid-May allows majority shareholders who own over 90 percent of the shares in a company to squeeze out minority shareholders. The procedure is amazingly simple: All the majority owner needs to do to get rid of minority shareholders is get an assessment of his company's shares from an independent auditor, call a general meeting for the vote and buy them out. The majority owner even gets to set the price of the stock and minority shareholders are obliged to accept it.

The amendment of that rule will require majority shareholders to control at least 95 percent of shares in order to be eligible to initiate a squeeze-out of minority shareholders, said Finance Ministry spokesman Marek Zeman. And only those majority owners who recently gained that majority will be able to squeeze out minority members. Today majority owners can initiate squeeze-outs regardless of when they gained their stakes in companies.

Disputed prices

The earlier amendment was greeted enthusiastically by majority owners who lamented how minority shareholders can at times prove to be major obstacles to efficient management of their companies.

General meetings where shareholders were expected to approve squeeze-outs of minority shareholders were called at 57 companies within 20 days of the new legislation going into effect, said the capital market's monitoring agency Ceská kapitálová agentura (CEKIA). Among those preparing squeeze-outs are major insurance company Ceská pojistovna, mining company OKD, banking house Ceská sporitelna, and Pilsner Urquell brewery. CEKIA predicted that another 300 companies could soon follow the suit.

Minority stockholders, however, maintain that the current law is a rip-off.

"Squeeze-outs represent property expropriation," said Karel Stanek, chairman of the Union for the Protection of Minority Shareholders (OSMA).

He said majority owners are allowed to freely dictate the conditions of the squeeze-out and minority shareholders were forced to accept them. As a result, Stanek said, OSMA plans to file a complaint with the Constitutional Court.

"We are resolved to file a complaint within a short time," Stanek insisted.

Though there was no disagreement among business analysts about the positive effect of squeeze-outs for company management, opinions on the fairness of squeeze-outs are mixed.

"The buyouts made thus far indicate that majority owners try to avoid problems and are offering interesting prices against spot prices on the market," said Jan Schiesser, an analyst with Atlantik FT.

Komercní banka's Dufek, however, predicts that many companies will not act fairly; he even anticipates companies will start court disputes over the squeeze-out prices.

Although squeeze-outs are also common elsewhere in the European Union, they occur only at companies whose stocks are publicly traded on the stock exchange. However, Stanek pointed out that setting the squeeze-out price is a much fairer proposition in other EU countries because it incorporates expected future profits.

For example, Alexej Bechtin, spokesman for Pilsner Urquell, said the brewery's majority owner, South Africa's SABMiller, recently announced its intention to buy out the 3.1 percent stake that 56,000 small shareholders hold collectively in the company; it will pay 17,686 Kc ($704) per share with a nominal value of 1,000 Kc.