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Minority owners are left exposed

Move that could end stock squeeze-outs is delayed indefinitely

By František Bouc
Staff Writer, The Prague Post
January 31st, 2007 issue

André Bergen — general director of Belgian financial group KBC, which owns a majority of the Czech bank ČSOB — admitted in December that KBC was rushing to squeeze out the bank’s minority shareholders so that it could become ČSOB’s sole owner.

At the time, there was cause for concern. The Constitutional Court was expected in mid-January to re-examine and possibly dissolve the so-called squeeze-out law, which allows anyone who controls 90 percent of a company to forcibly purchase the remaining 10 percent of the shares.
Two judges from Prague City Court and a group of senators initiated the Constitutional Court case by filing an appeal that questioned whether
squeeze-outs are legal. One of the judges, Zuzana Ciprýnová, said the virtual expropriation and removal of private property could infringe on the principles of basic human rights.
But now Bergen no longer needs to hurry. The Constitutional Court failed Jan. 10 to issue any verdict on the case and postponed the issue indefinitely.
“We received extensive documentation, and there was not enough time for all parties involved to go through it,” Constitutional Court Judge Vlasta Formánková said. She added that the court could deal with the issue in the “foreseeable future.”
The European Commission is also examining whether the Czech squeeze-
out law falls in line with European legislation.
Minority shareholder woes
The squeeze-out law has caused controversy since its introduction in May 2005.
Minority shareholders have lamented the dictate of majority shareholders and the fact that the prices of stock buyouts are lower than usual market prices.
“It’s a rip-off,” said Karel Staněk, chairman of the Union for the Protection of Minority Shareholders (OSMA).
On the other hand, politicians who helped introduce the squeeze-out law, including Justice Minister Jiří Pospíšil, insist the legislation enables more efficient management in companies because minority shareholders can no longer block majority owners.
The law was adopted in order to clear the capital market from the large number of small shareholders who gained their shares in voucher privatization, a massive sale of state assets that followed the overthrow of communism in 1989. In the early 1990s, around 7 million people — more than 70 percent of Czechs ­­— became shareholders virtually over night.
So far, the overall cost of squeezing out small shareholders in Czech firms has amounted to nearly 10.5 billion Kč ($490 million), with state-controlled energy group ČEZ spending more than 2 billion Kč, said Petra Doležalová, board member at Czech Capital Information Agency  (ČEKIA).
Since July 2005, more than 250 majority shareholders have said they intend to take over complete control of their companies, she said.
More than 400 investors currently hold more than 90 percent stakes in their companies. The cost of all of them squeezing out minority shareholders would reach between 12 billion and 13 billion Kč, Doležalová said.

František Bouc can be reached at fbouc@praguepost.com


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