An amendment to the Commercial Code, approved by the lower house of Parliament two days ago, reportedly removes the ability of the government to waive the obligation for the buyer of the state’s stake to make a buy-out offer (Czech newspapers report today). The implication of the amendment went apparently unnoticed by the government, and we now expect to see a strong effort by the government to reverse it.
If the amendment were to take effect, however, the privatization of Cesky Telecom (expected next year) and particularly CEZ and Unipetrol (both have a December 2001 deadline) could get complicated and possibly delayed. The buyout obligation would very likely result in a lower privatization price and reduced interest on part of bidders. Moreover, delays in the privatizations could be significant (a year or more) should the government not manage to sell the companies before the June 2002 general election. Although some minority investors may welcome the prospect of having a chance to be bought out (the buyout price would have to be the higher of [a] a 6M average or [b] 85% of the acquisition price), the threat of complicated and possibly delayed privatization may have a negative effect on the prices of some of the three stocks to be privatized. Whether there is any negative impact on the stocks in question will also depend on how the market assesses the chances of the amendment becoming effective (we believe the amendment will ultimately not take effect).
The amendment still has to be approved by the Senate and signed by the president. The government may seek a deal in the Senate and the Chamber of Deputies toward altering the amendment or to rush through another amendment that would restore the government’s ability to waive buyout obligations.
(Ondrej Datka)