VSŽ president Gabriel Eichler was all smiles after striking a deal with US Steel on March 24 in which the American steel giant was set to enter the ailing eastern-Slovak firm. But concerns over future share values have cast doubt over the legality of the deal.
Two shareholders - Mosad, a company owned by Penta Group and the London-based Central Growth Fund PLC which together hold approximately 10% in VSŽ, supported by a third shareholder, Templeton, announced that they wanted VSŽ to call a special general meeting to ask for more details about the US company's entry into the steel maker.
Concerns were voiced over plans to move all VSŽ core steel activities to a new company, NewCo, which would be fully owned by US Steel. The move would essentially leave some current VSŽ shareholders with shares in the remaining, largely less profitable, non-core subsidiaries.
Shareholders also questioned the price of the deal, with leaked press reports saying that US Steel would be paying $60 million for VSŽ.
With two-thirds of the shareholders having to vote in support of the memorandum for the entry to go ahead, there are doubts that VSŽ management will get the votes they need to push the deal through.
Penta Group's director Jaroslav Haščák explained that his firm had called the meeting with the full support of all VSZ shareholders holding more than a 3% stake. He added that there was a need for the meeting to clarify the terms of the memorandum.
Jaroslav Grúber (left) said US Steel should up their $60 million ante to at least $400 million.
In the last few weeks Penta Group bought 1.65 million VSŽ shares at between 93 and 95 Slovak crowns per share, approximately 7% of VSŽ's total shares.
Analysts said that the share purchase would likely cause real problems for VSŽ at the meeting, with various groups linked around the former presidents of the Slovak steel firm, Alexander and Július Rezeš, possibly grouping together with a 30% share in VSŽ to stymie US Steel's entry.
Slovak media recently said that U.S.Steel would pay $60 million for VSŽ and invest about $700 million in Slovakia over the next 10 years. VSŽ refused to confirm this.
However, Jaroslav Grúber, key representative for the powerful VSŽ trade union Hutník which holds a 10.34% stake in VSŽ, was quick to criticise the price offered for the firm as well as other fundamentals of the memorandum.
"$60 million for VSŽ is a pittance. If U.S. Steel offers substantially more than just $60 million, Hutník will support it," Grúber said, adding that an adequate price for VSŽ would be $400 million.
According to Grúber, U.S.Steel officials realise that they need a majority support of VSŽ shareholders to sign the deal. "That's why they are willing to discuss the price [with shareholders] through VSŽ management and Deutsche Bank [the managers of the strategic partner search for VSŽ]," he said.
VSŽ spokesman Jozef Marko said that there was a possibility to negotiate the price of buying NewCo. He added: "At the moment we are meeting different shareholders and trying to explain to them the ins and outs of the memorandum to get their support," Marko said.
However, according to Grúber even a fundamental part of the memorandum - the transfer of VSŽ assets to the new company - is detrimental to shareholders, especially minority ones.
"If a new company takes all the core assets, the rest [of the VSŽ non-steel subsidiaries] won't be able to survive without co-operation with this new company," Grúber said.
Concerns of minority shareholders about the value of their shares after US Steel's entry have been growing.
Vladimír Gurtler, a lawyer who owns shares in VSŽ said: "If VSŽ and U.S. Steel follow their original plan and transfer all assets to the new company the value of shares from the shareholders' point of view will go down rapidly. This might be problematic [for US Steel] from a legal point of view. "
Gurtler added that shareholders should at least be given a chance to sell their stake and leave the company. At present it is unclear whether or not the minority shareholders will be given the opportunity to do that.
Martin Barto, head of strategy at the state-owned bank SLSP and a member of the VSŽ supervisory board, said shareholders should realise that VSŽ was on its knees back in 1998 and that it still had debts.
"The company has been somehow put back together since 1998 but only the good will of creditors has allowed management to discuss offers like this with U.S.Steel. Everybody has to sacrifice something," Barto said.
The shareholder protests have highlighted the on-going problems Slovakia has with shareholder rights. Analysts have said that the Slovak business environment does not provide enough protection for minority shareholders with massive failings in corporate governance, including standard behaviour towards small shareholders, and inadequate legislation.
Unlike its neighbour, the Czech Republic, Slovakia does not have an independent institution protecting the rights of minority shareholders. A securities commission modelled on the Czech version is slated to be established this year, some two years behind that operating on the Czech bourse.
However, analysts have said that it will take years to establish a good system of corporate governance.