Minority shareholders and Ford win out in Automobile Craiova privatization

“The negotiations with Ford began, officially, when the technical offer from the American carmaker was validated in the second half of July. The most intense period was around two weeks before the contract signing,” said Florentin Tuca, managing partner of the law firm Tuca, Zbarcea and Associates, which represented AVAS. Manuela Nestor, a coordinating partner at the law firm Nestor Nestor Diculescu Kingston and Petersen (NNDKP) and representative of Ford in the deal, said that in the final few days before the contract was signed she was getting just a few hours' sleep a night. On September 12 the privatization contract for Automobile Craiova was signed. This, despite skeptical analysts who announced soon after the final financial offer (EUR 57 million) was opened that the sum was not as high as expected and the Authority for State Assets Recovery (AVAS) had not negotiated a very good deal.

Minimizing risks
According to Tuca, the negotiation period was a harsh one and each party tried to minimize their risks. “Special attention was given to the conditions under which the share transfer had to be made, the reorganization obligations assumed by Ford and post-privatization demands,” he added.
According to the privatization contract, Ford Motor Company is obliged to invest more than half a million euros in new production technologies, keep the current activities going at the Craiova plant for four years, maintain and increase production of 300,000 units as well as the number of employees. These targets are mandatory if the company does not want to be fined more than EUR 25 million.
“The problems linked with responsibility were the discussed the most during negotiations. Each party asked for warranties to minimize their risk in case some obligations had been bent,” said Nestor. The total sum that Ford will pay for and invest in Automobile Craiova will reach EUR 750 million in the next four years. On top of that will be the thousands of new jobs the American company promised, and the whole new economic development in the spare parts industry.

Minority shareholders to set the rules
Ford did its homework and secured several advantages from AVAS regarding this privatization.
The authority is obliged, three months after the privatization is completed, to buy minority share packages and sell them to Ford at the acquisition price. A serious issue on the horizon includes SIF Oltenia, which owns 22 percent of Automobile Craiova. “SIF Oltenia will ask 20 percent more per share for its package compared to Ford's offer because we are interested in the money, we don't have social issues to negotiate. SIF Oltenia wants the money per share as requested or other compensation from AVAS,” said Dinel Staicu, president of SIF Oltenia.
The idea has been mooted of AVAS offering the minority shareholders of Automobile Craiova shares in other firms owned by the authority, such as Petrom, Distrigaz Sud, E.ON Gaz and Electrica.
The issue is also a talking point within the Ford team. “The existence of a minority shareholder such as SIF Oltenia is a complication and preoccupation for Ford. It is obvious that when the investment plan is put into practice, these shareholders will have little chance of keeping up with all the capital increases, especially when dividends are not expected to be allocated anytime soon. This situation could lead to frustrations for minority shareholders,” said Nestor.
Lawyers representing AVAS told Business Review that if AVAS does not manage to buy these share packages, Ford could not have a change of heart in this privatization and back out.

Million euro debts
According to the privatization contract, AVAS had to find a final solution to the problem of the historical debt – EUR 750 million – that came from revoked state aid. All debts were to be paid to the Romanian Fiscal Authority by the factory from Craiova. “The trial ended this week and the debt no longer exists,” Laszlo Gyerko, vice-president of AVAS, told Business Review.
The lawyers are not taking this situation lightly, because if the circumstances surrounding this issue are not clarified once and for all unpleasant surprises could occur. In January of next year, at the latest, both AVAS and Ford expect the European Commission to give its approval of the transaction.

Dana Ciuraru

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