ZPUE - from yacht to delisting? Another "family company" wants to exit the WSE.

1. History of the yacht - a reminder

In the summer of 2020, there was a lot of buzz about ZPUE S.A. ("ZPUE") which became famous for, among other things, leasing a luxury yacht. We wrote about the case in the summer of 2020. HERE. For a brief reminder:

• As a general rule, ZPUE's dividend policy provided for the payment of 25%-50% of net income as dividends.
• During the pandemic period, there was a recommendation by the Board of Directors to allocate the profit for 2019 in the amount of about PLN 47 million entirely to reserve capital. As indicated by the Board of Directors, in its opinion, this recommendation is justified by the existing situation caused by the SARS CoV-2 pandemic and the associated uncertainty in the implementation of investments (...).
• At the AGM on June 30, 2020. (and therefore during a period of some stabilization of the market situation), a resolution was passed to allocate profit to reserve capital as recommended by the Board of Directors (especially by the votes of majority shareholders).
• A little over two weeks late, the Board of Directors announced that the company had leased a yacht worth approximately PLN 37 million. According to the current report, the leasing of the yacht was intended to, among other things, provide access to a mobile office, hotel and advertising medium in one, attract customers, and participate in industry events. The decision to lease the yacht was intended to contribute to attracting new customers and increasing ZPUE's recognition in new markets as a stable and reliable company.
• According to the minority shareholders of ZPUE represented by Jaskowiak Nadra Lawyers, the effect of the yacht lease turned out to be (at least in the short term) different. The company gained tremendous media publicity, while not necessarily in the kind of context that resulted from the assumptions made for the yacht lease. Many opinion media wondered publicly - why would a company that is a in fact a manufacturer of equipment for the yacht power sector.
• The leasing decision was made public on Friday, 17.07.2020. (after the close of the continuous trading system). In the week following the announcement, ZPUE's shares on the Warsaw Stock Exchange shrank by a value that reduced the Company's capitalization by an amount close to the value of the leased yacht, which, in the opinion of the minority shareholders represented by the Firm, was quite telling. After all, it is not without reason that it is said that "the market is always right."
• Interestingly, exactly 17 days before the current report on the yacht lease, the AGM adopted a Remuneration Policy adopting changes to, among other things, the use of Company equipment and the performance of business trips. In this situation, shareholders began to wonder whether these provisions also included an entitlement for members of the Company's Bodies to use the yacht. In a later current report, the Board denied such conjecture.
• The above caused the Company's shareholders to receive a number of potentially divergent announcements about ZPUE's financial situation in small intervals.
• More than a dozen investors approached the Firm with a request to protect their interests as minority shareholders. In their preliminary assessment at the time: (i) there were doubts about the principle of equal treatment of shareholders, (ii) since the Company could afford to lease a yacht worth about PLN 37 million (including freezing a security deposit of PLN 7 million for several years), to maintain it on an ongoing basis, to pay fuel costs, etc., it could even more afford to fulfill its commitment to shareholders - that is, to pay dividends at the level resulting from the adopted dividend policy.
• Corporate team of Jaskowiak Nadra Law Firm Attorneys at Law led by attorney Bartosz Nadra, represented ZPUE's minority shareholders in relations with the Company's Board of Directors and in the exercise of corporate powers.

2. Actions of minority shareholders

On 30.07.2020. The Firm, on behalf of some of the minority shareholders, made a request to the Company's Board of Directors pursuant to Article 428 par. 6 of the Code of Commercial Companies with a request for additional (outside the AGM) information regarding the circumstances and economic motive for (i) the Company's conclusion of the lease agreement for the Princess Yacht 30M028 on 17.07.2020, (ii) the acquisition of the organized part of the enterprise named "Heat Plant" on 31.03.2020, (iii) the recommendation of the ZPUE Board of Directors to allocate the profit for the financial year 2019 entirely to the reserve capital. The speech included a total of 18 questions. The Company answered the questions covered by the law firm's call within the framework of the current report (full content available here). The responses indicated, among other things, that:

• The lease of the Yacht has no impact on the Group's dividend policy and development strategies for 2016-2020. Charging the company with the cost of the annual lease of the Yacht in the amount of PLN 3.3 million. Net does not in any way derail the possibility of a payout. Suggestions linking the conclusion of the Lease Agreement to the interests of the Company's CEO are mere insinuations.
• Travel on the Yacht by Members of the Board of Directors, with the exception of their performance (as in the case of employees) of official duties, is provided for only on a fully paid charter basis.
• The ZPUE Board of Directors, in making its recommendation to allocate the entire profit to reserve capital, did not rule out the decision to enter into a yacht lease agreement, but also did not tie the decision to distribute the profit (and retain it in the Company) to the decision to enter into the lease agreement.

3. Stabilization period

Based on publicly expressed opinions (especially on investor forums), one can risk the thesis that the market has acquired doubts about the Company, which was illustrated by the behavior of the Company's price. The one before the information about the yacht was made public reached a high level - on 12.06.2020 the price reached even PLN 230.00, which after the not-so-distant lows from the peak of the COVID-19 scare (even around PLN 100-105) was a huge increase. According to publicly expressed opinions, the Company (by virtue of its operations) was to be the beneficiary of a "photovoltaic boom" - This is because the gigantic increase in interest in photovoltaics (including farms) was to entail an increase in demand for the Company's products.

Near the close of trading in October 2020, the Company's shares on the Warsaw Stock Exchange reached a price of 118.00 zlotys, giving a valuation (for a healthy dividend company) that was very low, with C/Z ratios lapping at a level of 3, which is rare for such companies. The Company came alarmingly close to the value of the price from the peak of the fear during the Corona-Crisis.

It seemed that the topic had somehow lost momentum and slowly died out. The Company's valuation on the WSE began to rise with the market recovering. The topic of confusion related to the yacht slowly went into oblivion (except for occasional biting comments on some investor forums).

4. Delisting?

Meanwhile, on 28.01.2021. The Company published current report No. 1/2021 ("Disclosure of delayed confidential information on clarification of intention to seek investors interested in concluding an investment agreement") in which the Board of Directors provided delayed confidential information dated June 18, 2020, updated on October 29, 2020, regarding the start of the search for investors interested in concluding an investment agreement aimed at buying out the Company's minority shareholders and leading to the delisting of the Company's shares from the regulated market. This was followed by current report No. 2/2021 on the adoption by the Company's Board of Directors of a resolution to purchase the Company's own shares for cancellation, the conclusion of an annex to a loan agreement to buy back the Company's own shares for cancellation, and the conclusion of an agreement to conduct a public tender offer for the Company's shares.

Translating the above into simpler language, the dominant shareholders took actions related to the so-called delisting, i.e. buying back shares, suspending stock trading, and then the company leaving the WSE.

When is delisting most often done? When an entity is skeptical about disclosing its business information and reporting (which, after all, diminishes its competitiveness), when a majority shareholder sees an opportunity in a possible share buyback due to shares trading below fair value, when there is a bankruptcy or takeover by a larger player.

This raises the question of what was behind the decision to initiate the delisting of ZPUE by the Board of Directors and the dominant shareholder. Was it in any way related to the "yacht affair"? Current report No. 1/2021 suggests no such connection, pointing to the date of the delayed information as June 18, 2020. (The information about the yacht was made public on 17.07.20202). However, the period of disclosure of delayed information in this situation was a little over half a year, which is a significant period. It is difficult to escape such associations altogether, since even Parkiet called its article of 28.01.2021 "ZPUE wants to sail away from the stock market".

From today's perspective, one wonders how minority shareholders should have behaved over the past six months. From the posts on investor forums, it can be deduced that some individual investors, due to the confusion over the yacht, got rid of their shares. Perhaps they regret this, as the announcement of the above information significantly pulled up the stock price in anticipation of a higher redemption.

Undoubtedly, however, this is another pebble in the garden for the discussion of (i) the timing of disclosure of inside information (ii) the desirability of family companies on the WSE. After all, it happens that companies come to the regulated market for growth capital, but the controlling majority shareholders (often a particular family) cannot get out of the habit that the company is owned by them. Meanwhile, when shares in a new issue are taken up, they remain that ownership only to the extent of the percentage of shares (votes), with regulatory restrictions. Added to this are onerous current reporting obligations, corporate restrictions, transparency, minority shareholder rights, audits, etc. It is hardly surprising, therefore, that there are cases when a shareholder tired of all this decides to delist. There have already been at least a few such cases. Is the case of ZPUE another one of them? The current state of knowledge does not allow us to make any definitive theses, but undoubtedly everyone should evaluate this case on their own and draw their own conclusions.

The case once again confirms that minority shareholders can and should effectively exercise their rights (including those related to seeking information), and in this regard the law firm supports investors, shareholders as well as the companies themselves. Details of the offer can be found at subpage on corporate disputes.