Once again, the sticky dispute between majority and minority shareholders of Jacobs Suchard Figaro, Slovakia's confectionery giant, has come unglued as each side has filed lawsuits against the other.
This latest episode marked another chapter in the nearly three-year battle between Figaro's small owners and the company itself. But it's taken on a larger context, since Figaro's majority owners are composed of a layer of conglomerates stretching from Jacobs Suchard Figaro to Kraft Jacobs Suchard up to Phillip Morris. Thus, many see this tussle as a high-profile clash of interests between a multinational company seeking to build and consolidate its strength and small investors seeking regular returns.
Kraft Jacobs Suchards's (KJS) decision at Figaro's May 7 Annual General Meeting (AGM) not to pay dividends for the fourth year in a row angered the company's minority owners and puzzled at least one analyst. "Their behavior is quite strange as multinationals are usually here to stay, and this is not about such a large sum of money," said Martin Barto, an analyst with ING Barings Securities in Bratislava.
Sweet wedding
Expectations were quite buoyant in 1992, when Jacobs Suchard bought a 67 percent stake in Figaro, one of two major chocolate and confectionery producers in the former Czechoslovakia. The price of Jacobs Suchard Figaro, as the company was promptly renamed, went up until it broke the 4,000 Sk per-share mark on the Bratislava Stock Exchange in April 1994.
Then it tumbled, bottoming out at 600 Sk per share in the spring of 1996, with shares now trading at about 850 Sk. Many analysts blame the stock drop on JSF's results for 1994 and 1995, when the company lost money and paid no dividends.
Both sides have their own explanations for the company's performance during that time. Bernard Huber, the KJS executive vice-president for central and eastern Europe, blamed it on the need to invest into market-share gains and to pay back taxes from 1993. Robert Blažek, the managing director of Prague Capital Partners and the minority shareholders' most vocal representative, alleged that KJS was siphoning away profits to its fully-owned subsidiaries by unfavorably fixing prices of both JSF products and raw materials.
Shareholders agreed to bury the hatchet at last year's AGM where Huber promised JSF would show a profit in 1996. Blažek said he was happy with the pledge, although he added ominously: "I won't stay happy long."
Bitter feud
Both predictions turned out to be true. As Huber promised, JSF recorded a net profit of 83 million Sk ($2.5 million) in 1996, but at the latest AGM, all of it was put aside as reserves or earmarked for new investment. But Blažek didn't stay happy long either, proposing that Figaro pay 40 percent of its 1996 net profit as dividends at the AGM. It was not accepted. "This is still a very young company, and we need to invest more," KJS legal counsel Michael Cohen explained. "It's not like we set this company up to never show a profit."
Even before that, though, events took an ugly turn. In February of 1997, a group of minority shareholders clustered around Blažek used ¦181 and ¦182 of the Slovak Commercial Code that entitles owners of more than 10 percent of shares to request the board of directors to call an extraordinary general meeting (EGM) and to put forth matters for deliberation.
After three EGMs with the same program requested by Blažek's group, JSF's Board of Directors decided not to call the fourth EGM. Angered, the group sued four Board members.
JSF's management retaliated, suing the minority shareholders for "abusing their position and to determine whether a minority shareholder can go on calling EGMs."
Both cases' future development is unclear, as both lawsuits could take years to be resolved. Cohen refused to guarantee dividends in the next year even if the JSF reaches the profit targets set by its business plan.
Future full of questions
The case seems to exemplify two general questions: 1) Can a multinational as a majority owner and small investors co-exist in Slovakia? 2) Are minority shareholders' interests effectively protected here?
Barto thinks Slovak laws and their application is the problem, not multinationals. "This would not be the first case where the majority shareholder siphoned away profits, although it is probably the only case involving a multinational company," he said. "The reason is simple: shares of similar foreign-owned companies are usually not publicly traded in Slovakia. What we need is a whole series of amendments [to current laws] to get the information out of companies. We also need an independent body to watch the capital market and report offenders to criminal authorities."
The new Capital Market Concept (see TSS, Issue No. 3.08) promises to deliver on this, but it won't be for a couple of years. Barto explained its slow pace by a lack of public pressure. "We cannot expect politicians to solve the problem when only few people think there is one," he said. "And the only way to raise public awareness is a lawsuit like this."
On the other hand, one top manager with a Slovak company where a multinational has a majority stake thinks that laws notwithstanding, there is an inherent clash of interests between the majority owners and small shareholders. "A multinational does not care about the profit or loss of a particular factory," said the source who requested anonymity. "It always goes around Europe seeking the lowest taxes and the best accounting conditions. They arrange their daughter companies like pieces on a chessboard, whereas for a small investor, a particular pawn is all he has. You've also got to include the fact that it's always better for them to show a profit [in a company] they own 100 percent, and not in one where they own 51 or 67 percent."
Barto disagreed with that assessment. "There are a lot of cases where multinationals act decently," he said. "I believe it can work."
