The Czech "Euro" weekly magazine reports today that, of the total CZK 22 bil. (USD 550 mil.) compensation due to the Ceske radiokomunikace (CR) parent company for its dilution in RadioMobil, the cellular operator, CZK 10 bil. will be earmarked for a dividend, CZK 7 bil. will be paid in tax and CZK 5 bil. will be retained by the parent company for investment. This particular use of the compensation proceeds is reportedly outlined in the information memorandum being sent out to potential investors (preliminary bids are due December 4). According to the magazine, the memorandum includes a provision that the buyer of the government’s 51% in CR will approve a CZK 10 bil. dividend at the company’s AGM in March 2001 (the magazine does not exactly quote the memorandum, but we assume that the buyer would have to commit itself to this).
A CZK 10 bil. dividend implies a CZK 325 pretax dividend per CR share (or CZK 276 after-tax dividend per share for Czech tax residents, who face a 15% tax on dividend income). A dividend has always been considered an option, and it is difficult to estimate what the “market” expected. We see a payout of 2/3 of the after-tax compensation proceeds as a reasonable deal for minority shareholders, particularly considering that in this manner they can receive cash instead of having to wait for a better market valuation of the stock (particularly appealing with a telecom stock).
Secondly, the magazine suggests that the government’s legal advisors and the National Property Fund have not been successful in looking for ways of avoiding the buy-out obligation of the strategic investor (the new commercial code, effective January 2001, no longer allows the government to exempt the buyer of its stake from the duty to offer a buy-out to minority shareholders). Unless the government can quickly push trough a legislative amendment, the obligation to buy-out minority shareholder will likely lead to a lower sell-off price for the government’s stake. The buy-out price has to be (at least) the higher of (a) six-month average price and (b) 85% of the acquisition price. Our Ceske radiokomunikace recommendation is short-term accumulate, long-term buy.
(Ondřej Daťka)