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State ready to fight Rezeš for VSŽ

Ten months after a financial crisis at giant Slovak steelmaker VSŽ forced it to default on a $35 million loan, the firm's former management is staging a comeback bid in an apparent attempt to wrest control of VSŽ from the state.
Deputy Prime Minister for Economy Ivan Mikloš, addressing the HN Club economic discussion forum on August 30, said that former VSŽ President Alexander Rezes was attempting to stage a takeover of the company. "We have taken some steps to prevent it," he said, without elaborating.
The controversial Rezeš reportedly still controls a 20-25% stake in VSŽ. Evidence that he was attempting to regain his former influence in the firm surfaced after a private meeting held in mid-August at Rezeš's luxury Spanish villa. The summit was attended by Ján Smerek, former head of VSŽ's supervisory board, and former Prime Minister Vladimír Mečiar, under whom Rezeš served as Transport Minister.


VSŽ President Gabriel Eichler was swarmed August 30 by reporters asking questions about Rezeš.
photo: Vladimír Hák-Profit

Ten months after a financial crisis at giant Slovak steelmaker VSŽ forced it to default on a $35 million loan, the firm's former management is staging a comeback bid in an apparent attempt to wrest control of VSŽ from the state.

Deputy Prime Minister for Economy Ivan Mikloš, addressing the HN Club economic discussion forum on August 30, said that former VSŽ President Alexander Rezes was attempting to stage a takeover of the company. "We have taken some steps to prevent it," he said, without elaborating.

The controversial Rezeš reportedly still controls a 20-25% stake in VSŽ. Evidence that he was attempting to regain his former influence in the firm surfaced after a private meeting held in mid-August at Rezeš's luxury Spanish villa. The summit was attended by Ján Smerek, former head of VSŽ's supervisory board, and former Prime Minister Vladimír Mečiar, under whom Rezeš served as Transport Minister.

Reports of the meeting were first published in the Slovak daily Pravda. On August 28, at a national congress of his HZDS party in eastern Slovakia, Mečiar confirmed that the meeting had taken place. "I was on a private trip [to Spain], and held various meetings in various places with various people," Mečiar told reporters. "At one meeting, these gentlemen were present."

Also present at Rezeš's meeting in Spain was Jaroslav Gruber, a current member of VSŽ's Supervisory Board and head of the Hutník company which owns a 10% stake in VSŽ. Following discussions with Rezeš, Gruber on August 12 called for a special shareholders' meeting at VSŽ, which the firm has scheduled for September 22. The meeting will vote on the recall of current VSŽ President Gabriel Eichler, as well as on the 'stabilisation agreement' that the company is to sign in September with banks and the government.

Gruber also managed to persuade his fellow board members to sign a statement on August 13 critising the leadership of the company, which it called "un-transparent."

Rezeš vs Eichler?

With the state holding around 30% of VSŽ shares and foreign investors another 25%, it seems unlikely the Rezeš-Hutník alliance will have enough power to unseat president Eichler, who was elected to the post with government approval last December.

Mikloš said Rezeš had already had a chance to show his managerial talents at VSŽ, but had done nothing except siphon off money from the firm and leave it to disintegrate. "I am firmly convinced that one of the preconditions for VSŽ's recovery is to eliminate the influence of Rezeš," said Mikloš.

Finance Minister Brigita Schmögnerová, too, said the VSŽ Supervisory Board's criticism of the stabilisation agreement was disingenuous. "The agreement is only disadvantageous for the former management of the company, because it means the beginning of restructuring and changes in personal ties at VSŽ." she said.

But Eichler, speaking to reporters on August 30, said that he saw no reason to continue at the helm of the firm if he did not have the support of shareholders. "I am prepared to remain at my post if shareholders adopt a strategy of progress for VSŽ," he said. "To do anything, we must have have a unified leadership. I have never seen the management of any firm selected the way it is selected at VSŽ. Either we do it normally and VSŽ has a chance to prosper, or we do things differently and I step down in favour of someone else."

Miroslav Nosaľ, an equity research analyst with Merrill Lynch in London, explained that since his appointment last year, Eichler had become rather isolated at VSŽ, unable to assemble a management team around him to counter the influence of executives faithful to Rezeš.

"There is no question about Eichler's abilities, but my impression is that top and middle management is not fully on his side," said Nosaľ. "He has his hands full with internal fights, and he does not have full access to information about the company."

Eichler said he regretted that the future of VSŽ had become so politicised. "I thought I was going to rescue the company. I didn't know that it would turn out to be a political matter," he said. "There are 25,000 employees at the company, which has an impact on the whole eastern Slovak region and the economy of Slovakia. In view of this it is very unfortunate that the company has become politicized."

Looking a gift horse in the mouth

The development strategy favoured by Eichler - striking a stand-still agreement with creditors to allow restructuring, and then selling a stake in the firm to a foreign investor - has taken longer than expected to unfold. Slovak state bank VÚB, one of VSŽ's nine largest creditors, has dragged its heels on signing the stand-still agreement, while potential strategic partner US Steel disappointed both VSŽ and the government by offering only $220 million for a stake in the company last month after completing due diligence.

But with an estimated 500,000 people directly or indirectly dependent on VSŽ for support - including the families of people who work at the company and its suppliers - Nosaľ said the survival of the firm overrode squabbles over its value. VSŽ, he said, should have accepted the US Steel offer gratefully.

"The most important thing is that someone competent is in charge of the company," he said. "Whether an investor offers $220 million, or $100 million, the entry of a firm like US Steel could produce long-term benefits in terms of general investor confidence in the region and the country. It is also vital for Slovakia that VSŽ continues to function."

VSŽ announced last week that Deutsche Bank had been chosen to advise on a tender for a stake in the steelmaker. Eichler said that it would likely take "two to three months" for a deal with a strategic investor to be sealed.

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