Emilia on the way to court?

The company was sold by the Treasury in September 2012 to Martlet, which is owned by the Griffin Topco II fund, in the second attempt to privatise the company. An earlier attempt to do so, in 2011, had been unsuccessful. The current Treasury insists that the value of the stake sold had been estimated at PLN 197.36 mln, but was ultimately under-sold for PLN 115.14 mln. Furthermore, the Treasury claims that an adequate privatisation strategy was lacking, due to the fact that its information memorandum was misleading. According to the Treasury, the value of Meble Emilia’s Warsaw properties, which are located in the inner city centre and Mokotów district, among others, was not accurately given in the documentation. Market estimates of the value of the properties were not presented either and the information on the projects being carried out on the company’s properties was also insufficient. According to the Ministry, the main emphasis in the memorandum was laid on the company’s negative financial results due to unprofitable sales of furniture, whereas the company was planning to abandon the sale of furniture and base its operations on real estate management. According to the Treasury, all these factors are enough to imply an abuse of trust involving the deliberate sale of the stake below its real value. This, so the allegations go, resulted in the Treasury incurring a loss of at least PLN 82.22 mln from the properties.

Wrong decision?

The Supreme Chamber of Control of the Republic of Poland made similar accusations in December 2015 in an analysis of the privatisation of selected state-owned companies. The Chamber suggested that the company held significant assets in the form of real estate, which should have led to it being incorporated into Polski Holding Nieruchomości (PHN), the state-owned company that was being established at the time to handle the privatisation of such properties. According to the Chamber, the Treasury took the wrong decision when it did not include Meble Emilia in the PHN group, and this particularly became evident after the unsuccessful tender for the sale of the 85 pct stake in Emilia in December 2011. The Chamber also concluded that the activities of the then Treasury’s commission responsible for the receipt of reports had been negligent in accepting estimates of the company’s value that prompted the forced sale of all the company’s properties at liquidation prices, i.e. with a discount of 20–25 pct of the market value. The Chamber also stressed that neither the Treasury nor the company had envisaged such a scenario. The Chamber noted that in three valuations carried out over a nine-month period, each time lower market values were estimated for the 14 properties owned by the company, including seven in Warsaw – from PLN 228.74 mln to PLN 200.53 and then down to PLN 174.13 mln.

Following the decision of the current Treasury to file a legal complaint, Griffin Real Estate, whose subsidiary purchased shares in the privatised enterprise in 2012, has issued a statement. The investor claims that the allegations made by the Treasury are groundless and that the company was sold in a public, open tender procedure, the most important criterion of which was the price offered. Griffin also points out that any interested entity could participate in the procedure and was attended by a number of such companies.

According to Griffin’s representatives, the Treasury is not factoring in the dire situation that Meble Emilia was in due to activities of its former management. This information was not given in the information memorandum either. According to Griffin, after the privatisation it turned out that the management of Emilia Meble had concluded long-term, and highly disadvantageous, retail leases – and the termination of these contracts has cost over EUR 1 mln; the real estate portfolio of the company that was sold was burdened with reprivatisation claims as well as the extremely disadvantageous contracts concluded by the management of Emilia Meble in the past; based on three investment contracts the most attractive properties in Warsaw were to be handed over to joint venture companies established together with a development companies (according to Griffin these contracts were also extremely disadvantageous for Meble Emilia, because on their basis the company was to contribute the land, incur the costs of the project preparation and organise the financing for the projects in exchange for 40 to 50 pct of the income from them); and the above-mentioned development company had a guaranteed general contractor agreement in place for future projects without any tender being required.

Griffin has also reported that all the contracts have been terminated, which involved incurring compensation costs, and the company argues that the Treasury Ministry has also ignored the fact that the buyer of Meble Emilia, on top of carrying out a thorough restructuring of the company, has undertaken to implement an attractive package for its workforce, which was negotiated with the trade union. In its statement the investor claims that it has fulfilled all of its obligations and borne the appropriate costs. More information on this issue is available on www.eurobuildcee.com