International Property News

Orco shakeup linked to Swiss investment bid

3rd March 2009

Orco Property Group CEO Jean-Fran�ois Ott, concerned about losing influence over the company, rejected a takeover offer from the Swiss investment group Cogef.

This development allegedly was what triggered the resignation of the three Orco vice presidents who negotiated a deal with Cogef. Orco Property Group declined to comment. The Swiss investment group, however, did not deny that talks with Orco took place. Meanwhile, concerned Orco shareholders have formed a group to try to get some say in the future of the troubled company.

Earlier this month, Orco�s CEO held out the promise that the situation at the developer would be improving. �We are well on our way to solving some of the short-term issues with the signature of two major deals on Orco Germany and Orco Property Group that should provide us with funding in the next days and weeks. Several management changes are taking place this week that will help us better adapt to the changing world and move forward with a leaner managerial structure,� Ott said in a confidential letter sent Feb. 12 to all Orco employees.

The same letter was forwarded to CBW Feb. 21 by an anonymous source. The source also shed more light on what has supposedly happened during a Jan. 27 meeting of Orco�s management board when some managers fell into a serious argument with Ott and either resigned or were dismissed.

According to the source, the key argument that had recently led to the resignation of chief financial officer (CFO) Luc Leroi, the vice president for corporate finance Arnaud Bricout and chief operating officer (COO) Steven Davis was the attempt of those persons to introduce a new investor to the ailing company. The presence of a new investor may have cost Ott the position of the CEO. Ott�s stake in Orco has already fallen to 1.6 percent from 12 percent, making him just the fourth-largest shareholder (see �Highly leveraged Ott quietly cut his Orco stake,� CBW, Nov. 24, 2008). U.S.-based private equity fund European Investors is now the largest shareholder with 4.9 percent in the company.

�Ott pushed for a dismissal a half of the management team just because they had actually tried to attract new capital from a credible Swiss investor, Cogef. Upon hearing this idea, Ott correctly felt a risk of his dismissal, as a new majority shareholder should not be expected to trust management that brought the company to its knees,� the source said. Ott took defensive steps right away, the source maintains. �[Ott�s] counterattack included three main moves. First of all, he promised the board of directors during a Jan. 27 session that he can find a much more attractive offer than one submitted by Cogef. Then he solidified his protection against his dismissal in the form of guaranteed �golden parachute� compensation. Finally, he pushed three vice presidents responsible for bringing the Cogef offer, which has been the only chance to save Orco, to resign,� the source said, adding that since the rejection of the Cogef offer all attempts to find an alternative investor ready to commit new capital has been futile.

�The only investor proposed by Ott during the Jan. 27 meeting has been the company SG Private Banking, managed by Philippe Setton and Ren� de Picciotto. This investor however was not interested in obtaining shares in the holding company, but in acquiring the best assets of the company like Prague hotel Pachtuv Palace (pictured). SG Private Banking is the wealth management arm of France-based financial service group Soci�t� G�n�rale. It has �66.9 billion (Kc 1.9 trillion) in assets under management worldwide as of the end of December 2008, according to its Web site.

�Ott is fighting for his personal interests: staying on the board as long as possible, selling the best assets to Setton and Piccitto, getting salaries for a couple of months until the stock price falls so low that finally a new majority investor appears in Orco guaranteeing Ott windfall cash from the parachute,� the source said.

The same source has previously contacted CBW with information concerning Orco.

The initial revelations regarding the Orco management reshuffle (see �Orco management faces mass exodus,� CBW, Feb. 16, 2009) proved true and were ultimately confirmed by Orco in an official communication issued Feb. 17.

CBW also cited the same source claiming that disputes within the management concerned a �1.8 million loan to Ott�s investment vehicle Ott & Co, granted in June 2008 without the approval of management board, the right to a lump-sum �34 million compensation for the executive committee in case of potential dismissal following a changes in company control and ultimately the fact that the management had been misled by the CEO about his disposal of a controlling stake in Orco between July and September 2008 (see �Desperate moves at Orco make investors feel uneasy,� CBW, Feb. 23, 2009).

Orco Property Group did not reply to these allegations, despite multiple attempts to contact company representatives. CBW also contacted the office of SG Private banking�s Setton, but did not receive any reply by press time.

Responding to CBW�s question concerning Cogef�s supposed takeover of Orco Property Group, Yariv Elbaz, the CEO of the Swiss investment group, did not deny the speculation. �I can say that we know Orco, but we cannot comment on the matter as Orco is a publicly listed company,� he told CBW.

ORCO shareholders from group

Czech minority shareholders in Orco have recently established an association called SOS Orco that should gather together minority shareholders of the troubled company who are disappointed with the performance of current management. �We are concerned about strange moves at the company headquarters. The recent communications coming from Orco do not calm us down, but have rather the opposite effect,� said Lubo� Smrcka, the founder of SOS Orco. He told CBW that minority shareholders are afraid that Ott is working to the company�s detriment, leading it to bankruptcy. �If enough minority shareholders come to the next annual general meeting (AGM) to be held in April, we will vote for the resignation of Jean-Fran�ois Ott and other newly appointed board members,� he said.

Like other companies in the real estate sector, Orco has been hit by the financial crisis.

The company recorded a turnover of �299.3 million for 2008, which was in line with 2007 results. During the previous three years, sales grew at a double-digit pace. Full-year results will be released March 17. The asset disposal plan for 2008, aimed at securing cash, came in slightly below expectations for the fourth quarter. The plan generated only �29 million during the quarter, bringing the yearly total to �186 million, short some �200 million for the year�s target (see �Orco shows flat performance, braces for difficult year,� CBW, Feb. 9, 2009). The value of Orco shares has been dropping steadily since mid-2007. On June 25, 2007, shares traded for Kc 3,740, and on Feb. 26, 2009 they were trading at Kc 113 per share.

Source: CBW