Alchemy Partners LLP : Open letter to Orco's shareholders

LONDON, Dec. 17, 2013 (GLOBE NEWSWIRE) -- Alchemy's call to vote against Gamala's resolutions in the best interest of minority shareholders

Dear Shareholder,

First of all, we would like to thank the numerous institutional and individual shareholders who have contacted us (since we published our Open Letter on 6th December 2013), pledging their unanimous support (and proxies) for our stance, and that of Kingstown.

We also understand numerous shareholders have written to the company expressing their opposition to the OG capital increase.

Not one shareholder contacting us showed any support to the path taken by OPG's management or the position laid out by Mr Vitek, another minority shareholder in OPG through two entities (Gamala Ltd and Crestline Ventures Corp)

Brief recap of all important issues around Orco Germany's capital raise

  • On Nov 29th 2013 a number of OPG directors decided that they would agree to a reserved capital increase of up to €100 million in Orco Germany ("OG"), including the issue of €54 million of stock to Tandis, a.s., a vehicle owned and controlled by Mr Vitek, at a price of €0.47 per share.
  • Alchemy and Kingstown successfully obtained an order from a Luxembourg Court to stop this share issue from continuing.

Alchemy would also like to add to the points made in its earlier Open Letter to shareholders on various key points:

  • Not once has OPG management claimed any capital need at OG. Indeed, management singularly failed to produce any analysis supporting a specific capital investment at OG - certainly no project has ever been discussed at the Board or with Alchemy. We note that OPG management has apparently "presented exciting opportunities in the thriving Berlin Market" to Mr Vitek but not to the rest of the Board.
  • Not once has OPG management ever produced any analysis supporting a €100 million capital need at OPG.
  • On occasion, management have said that they would like a €100 million of new capital but without ever being able or willing to distinguish between capital need and capital want.
  • It is certainly not the case that the Board of OPG has ever "agreed" that OPG needs at least €100 million, as for example Mr Vitek alleges. Indeed it is the efficient rationing of capital to date which has ensured that some heavily-indebted developments have not been supported just for the sake of it.
  • Despite the apparent "urgent" need for €100 million, management was unable to even include any capital raising at OPG or OG as an agenda item at the recent Board meeting (on 27th November 2013) at which the OG capital raise was allegedly agreed. We, at Alchemy, believe that there are no supporting materials whatsoever to justify this €100 million capital need:
    • No analysis of the other capital raising options available to OPG
    • No analysis of the effect of the loss of control over OG as a result of this capital raise and its implications
    • No options presented to the Board for other temporary liquidity sources, such as suspended capital expenditures, expense cuts, expedited assets sales, etc
    • No itemised use of proceeds, not even by country or type
    • No timeframe for the investment of the new capital
    • No return on capital analysis, and therefore no priority identified for the best projects
    • No new capital projects identified

We also strongly think that there was also a complete absence of any process run to ensure that capital was being raised in the most efficient manner possible. To claim, for example, that the "market price" of OG is a sufficient evidence of a good price, when less than 2% of the issued share capital of OG is free float, is wholly unconvincing and entirely inadequate. The price at which shares were offered to Mr Vitek's associated company, Tandis, a.s. was at an undervalue.

  • Despite this lack of basic controls and process, and in the face of strong opposition from independent Board members and from Alchemy and Kingstown, management chose to pursue this capital raise and Mr Vitek chose to subscribe to it.

Alchemy believes this shows a disgraceful lack of concern for the interests of shareholders and therefore:

  1. We are vehemently against the hugely dilutive issue of shares in Orco Germany to Mr Vitek - we believe this share issue was not necessary and not properly agreed upon by the Board; is extremely damaging to the interests of OPG shareholders and we are committed to preventing it from happening through both court and shareholder action. We would encourage all shareholders to communicate their strongly-felt opposition to this capital raise openly to shareholders and to the company;
  2. We call upon all shareholders to defend their interests by voting against the resolutions proposed by Mr Vitek at the upcoming Ordinary General Meeting ("OGM") on 6th January 2014. If Mr Vitek's proposals are approved, there will be no independent directors on the Board of OPG and he will be the sole shareholder representative, in control of your company together with management.

Serious concerns of corporate governance and attempts to take the company's control by Mr Vitek

Mr Vitek, since becoming a minority shareholder about 12 months ago, has been trying to take control of OPG without paying full value for a controlling stake. These are the reasons leading us to think what we just stated:

  • May 2013: without any prior consultation with shareholders or the Board, Mr Vitek convened an OGM proposing to flood the Board with 5 nominee directors of his choice. A compromise was reached to defeat this move, whereby we agreed to continue, but with a balanced Board with the addition of a new independent Director - sadly despite Alchemy initiating the process by setting up a process with internationally recognised search firms, management have failed to keep their side of the agreement and to date have not interviewed one candidate. Unfortunately this left the Board open to a manoeuvre like the one we saw on Friday 29th November, when a huge share issue was made to a vehicle controlled by Mr Vitek.
  • A few months later, on 5th November 2013, despite agreeing to a "balanced Board", Mr Vitek decided to make another attempt to take control of the Board - this time by proposing to remove 6 of the 9 Board directors, including all the independent directors and other shareholder directors.
  • In his recent communications to the market, Mr Vitek conveniently failed to mention on-going attempts to control your company:
    • Mr Vitek has claimed that OPG needs "immediate funding of a minimum of €100 million or it will go bust again" - this is a gross misrepresentation and extremely damaging to the interests of the company and its shareholders
    • For example, €66.1 million of the c€300 million of defaulted debts to which Mr Vitek refers, relates to 3 assets in Hungary. These 3 assets have a combined GAV of €57.4 million, and therefore a negative NAV of €8.6 million. The loans are non-recourse to OPG for any capital repayment and therefore present a remote bankruptcy threat to OPG.
    • This singular lack of engagement (Mr Vitek has failed to attend any of the last 4 Board meetings since May 2013) to date combined with the destabilising effects of his various attempts to take control of the Board are not the actions of an investor who is seeking to maximise returns for all shareholders - on contrary, they seem designed to achieve the opposite - to generate returns at the expense of other shareholders

Conclusion: we therefore call upon ALL shareholders to register their shares with the company by 2nd January 2014 and to vote "NO" to resolutions 1 to 5 (proposed by Gamala) and "YES" to resolutions 7 and 8 (proposed by Alchemy/Kingstown)

Should any shareholder wish to discuss this then please contact:

In the UK: Buchanan Communications, +44-20-7466-5000
Richard Oldworth

In France LPM Strategic Communications, +33-1-44-50-40-39
Sophie Ryan,

Ian Cash,

Editor's Note:
Alchemy Special Opportunities ("Alchemy") owns 12.5 million shares or 10.95% of Orco Property Group ("OPG").

Alchemy:open letter to Orco Property Group’s shareholders


Source:Alchemy Partners LLP