## Sunday, January 24, 2021

### Petr Kellner's transactions look like pure, clever, and ethical capitalism to me

Petr Kellner is the wealthiest Czech. A Forbes list shows his current net worth as CZK 293 billion (USD 1 = CZK 21.5 now; so it is $13.6 billion). The following four men, Vítek, Křetínský, Babiš (the prime minister), and Komárek, only have CZK 86-71 billion. Kellner became his convincing journey towards being an almost crown billionaire soon after the Velvet Revolution when he founded some PPF funds that participated in the voucher privatization (only 11th by size at that time). By now, he has lots of assets in Russia and China (he probably wants to exit the latter because it's not really safe), especially the global Home Credit company. In Czechia, by now, he has acquired either 100% stakes or majorities in the O2 big telecommunication company, Cetin the telecom infrastructure, Air Bank, Home Credit CZ and SK, Czech Pojišťovna Insurance (with Generali), CETV with the largest commercial TV NOVA, Škoda Transportation making trams and trains here in Pilsen, a CZK 0.25 billion horse for his daughter that Bill Gates couldn't afford, and lots and lots of other things (in his PPF Group). The 2020 Forbes list also shows that he lost much more than anyone else, namely by CZK 57 billion in a year (some 20%). His assets were apparently sensitive to the Covid restrictions, especially in the first half of 2020. In fact, he is the only top ten Czech billionaire who got poorer between late 2019 and late 2020. But aside from being the wealthiest Czech and the "most quickly bleeding" Czech in the Covid year, I think that he has another priority. He is the most ethical major billionaire. His Friday offer to gradually acquire Moneta Money Bank, Czechia's fourth largest bank (and the largest bank without a majority owner – in the large banks, those are always foreign) helps to strengthen this point, I think. This photograph came after a few decades and was designed to show that the secretive Petr Kellner (right) isn't just a mysterious character from fairy-tales. If we didn't have a Kellner, we would have to create one (that is what the 19th century Czech politician and writer František Palacký said about the Austrian Empire). I would contribute to make a$10 billion guy like this because it's a good thing for capitalism and the society. I am just not certain that the number of volunteers like me would be sufficient. ;-)

OK, Moneta Money Bank is a brand that emerged when this bank was sold (to small, fragmented shareholders) by its previous owner, General Electric, in 2015: as Moneta, it was trading at the Prague Stock Exchange. Previously, the bank was called GE Money Bank (or GE Capital Bank) from 2000 or so, after it picked some privatized banks we knew in communism (like Agrobanka). GE made a big mistake to throw away this asset. It became one of the most robust dividend stocks in Prague.

Fine. Moneta differs from the top 3 banks by having no clear communist era predecessor. It is very modern, very Czech, very ambitious in the electronic payments, online banking, and other things, and in those respects, it has always been similar enough to Kellner's Air Bank. But as the name indicates, Air Bank has much fewer bricks in it than Moneta, don't get me wrong.

It is natural for big players to try to acquire a gem like Moneta. Reiffeisen has considered it but said it wasn't ready, after all. Kellner tried to acquire a majority in Moneta 2 years ago. He would get some cash plus newly issued stocks of Moneta for his Air Bank plus Home Credit CZ+SK. It wasn't a ripoff but after a day, I decided it was too good for him and not the current Moneta shareholders. Indeed, this turned out to be a prevailing opinion, we (Moneta) demanded better conditions, and Kellner ultimately said No. The merger was stopped.

On Friday evening, we learned about the resuscitation of the merger plan. The detailed plan is accessible in a PDF file, the transparency is amazing.

It's similar as the plan 2 years ago but lots of things have changed. First, the apparent future of the banks is different. So 2 years ago, as I told you, I was among those who thought that the plan wasn't good enough for Moneta. Months later, I totally changed the mind when Kellner's banks showed an incredible profit growth. I suddenly thought: We just missed a great opportunity. Well, things are different now. Moneta only saw a modest drop of the profit while Kellner's banks were basically in the red numbers. Moreover, some of his business strategies and financial products are likely not to work well for a year or years. He knows that the character of his business was too dependent on things that may be easily harmed by Covid. I think that he would agree that he just needs more bricks.

So his new plan looks better for Moneta right now and it has to because Moneta looks more self-confident in comparison with Kellner's banks now. But there is one more difference: the plan 2 years ago was a "giant package" with compensations both in stocks, equity, and cash. You had to calculate how much the existing Moneta shareholders gain, how much they pay, and whether it is good for them. The ultimate answer was No. But now, it is different and more similar to how the evolution of species proceeded. The steps are supposed to occur separately, not as a package.

The graph shows that Moneta has been trading above CZK 90 a piece; but also reached some CZK 49 in the peak of the Covid hysteria in Spring 2020. The dividends were above CZK 6 for years; in 2019, the shareholders got CZK 6.15 plus CZK 3.30 of an extraordinary dividend (both minus 15% automatic tax). The dividends were above 10% of the stock price for quite some times. The current capitalization is CZK 35 billion; some JP Morgan-related companies are the greatest shareholder, with ~20% in total.

He knows that even after the stock price grew from CZK 49 to CZK 67 after Friday (and two days of drops), it is still an extraordinarily attractive price because the fair price of the stock is above CZK 100. So he is basically saying "I am going to buy 10 or 20 or 29 percent of the existing stocks" via a public offer and without questions. For CZK 80 a piece, a price that Moneta has seen at most normal pre-Covid times. He currently owns 0.6% only. After he increases the share to 10%, he needs an approval by the Czech National Bank for another public offer and this will lead his share to 20% or 29% – the plan says that he must have the freedom to choose how far he will go.

Only after he accumulates this large share but not a majority, he plans a shareholder meetings to approve the merger with his Air Bank and Home Credit CZ+SK companies. The shareholders of the new, merged companies would divide the new stocks proportionally: 60% of the new stocks would be held by the Moneta shareholders (those include Kellner, 20-29%), 40% by Kellner because they would come from the Air Bank and Home Credit CZ+SK assets.

Well, he could have been buying some stocks at the prices between CZK 49 and 72 which we saw in the recent year. But it's even cleaner for him to make all such major steps more transparent. So he tells you: you may sell some stocks for CZK 80. What I like about this offer is the ethical approach. All steps are consensual. No one is really forced to sell the stock for CZK 80 now; and the shareholders won't be forced to approve the merger with Air Bank.

In fact, it seems possible that the plan will be blocked at many possible points. First, if too many shareholders will offer their stocks for CZK 80 in February, only a proportional part of their offer will be satisfied. Such a reduction wouldn't be a problem for the deal; but it would indicate that many shareholders believe that the remaining stocks "not sold to Kellner yet" are less valuable than CZK 80. But of course, the opposite may happen, too. He just won't be able to find this many sellers (20-29%) for CZK 80. In that case, he might be pressed to improve the offer (increase the number 80 or reduce the number 40% etc.). This potential for a "better deal for Moneta" could be good for the Moneta shareholders. On the other hand, it would open the possibility that Kellner says "No" again and his plan could fail just like it did two years ago.

The Moneta shareholders' meeting that would approve the merger with Air Bank etc. would see Kellner with 20-29%. He would need to add 30-21% of the company in the form of other shareholders who agree with his plans. Those 30-21% are 38-30% of the non-Kellner 80-71% votes, respectively. So he still basically needs to persuade one-third of the other Moneta shareholders that the deal is good for Moneta. One-third is a nontrivial fraction. And I actually think that the deal could be good for Moneta. Note that the shareholders who are more supportive of Kellner's whole plan are likely to grow in percentage in coming days and months. Those who like the plan will probably be buying Moneta; those who dislike the plan will be selling.

Meanwhile, another bank could realize that Moneta is a great opportunity and its stock price is still suppressed. They could try to trump Kellner's offer. The easiest method is to plagiarize Kellner's project and change some numbers (and identity of the assets to be swallowed by Moneta in the later stage). If it became clear enough that a big whale is willing to buy a lot of shares for CZK 85, Kellner's plan could be threatened.

Well, it's an interesting mathematical exercise – that Kellner must have considered with many possible scenarios and psychologies – to figure out whether the stock price may actually reach or surpass CZK 80 by February. On one hand, the stock is really "worth CZK 80 or more" assuming that the plan goes through because the law may force Kellner to offer everybody, not just 20-29%, to buy the stock for CZK 80 or more. On the other hand, the stock should be worth less than CZK 80 next week because the buyers who will quickly increase the stock price will only get CZK 80 for a piece. So the short-term speculators have no reason to pay above CZK 80.

If the stock price goes above CZK 80 in February, it seems clear to me that Kellner won't be able to buy the 20-29% for that price. Why would someone do the special paperwork for the public offer and sell the stocks for CZK 80 if he can sell them directly for CZK 82 on the stock exchange? But the situation is funnily volatile. A stock exchange price below CZK 80 indicates that people believe that the remaining stock after the Kellner purchase will drop back below 80, and that should motivate them to offer the stocks for 80. On the other hand, a stock exchange price above 80 indicates that he won't be able to buy as much as he wants, and there is a risk that he will cancel the plan (or he will improve the offer which is not certain).

Because of these considerations, I actually do find it rather likely that the price will converge to the vicinity of CZK 80, the two views above will be fighting with one another, selling, and the percentage of the people who support Kellner's plan will go up. But if it is so, then it is likely that the plan will get through, he will be forced to buy the remaining stocks, and therefore the long-term price is above 80.

Kellner may do something bad later but so far he looks like a saint to me. He differs from so many people who are just making deceitful or half-deceitful tricks, who are trying to harm the assets right before they buy them up, who are blackmailing and threatening the old owners in various ways, and similar things. So of course I want the deal to be great for the existing Moneta shareholders but I also wish Kellner to become a crown trillionaire because his capitalist leadership has been so good for so many parts of our economy. His track record shows that big purely Czech owners may do better than the foreign owners and Czechs should peacefully yet self-confidently acquire the ownership in the Czech means of production (and services).