Orco will survive long after I am gone – said a while ago the company’s founder and its current owner Jean-Francois Ott. Now two and a half years later, Orco still exists. But it is shaken to its foundations. The company asked for court protection against creditors because it is behind with debt payments. Orco’s minority shareholders call for removal of the existing management. The company shares have dropped 20-fold in value since Ott’s statement about Orco’s long-lasting existence.
But nothing lasts forever. What we are witnessing now is the company’s struggle to survive. Ott will either convince the creditors to put their claims on hold or waive some of them, or his company will go bankrupt and the creditors will take whatever is left from Orco’s assets.
The heroic prince on a white horse now enters the story. Colony Capital, a US company which makes money by investing in undervalued real estate companies, is now offering help to Orco. EUR 80 million for a 30% stake in the company sounds like a deal.
However, the company’s announcement on Tuesday raised worries rather than revelry among the shareholders and analysts. They did not expect the financial aid to be twice as low as what Orco’s representatives had promised in the early stages of negotiations with the US investor.
Furthermore, Colony Capital said it would not give Orco any money unless the company solves its problems with bond holders. They are currently holding Orco’s debt worth EUR 429 million, nearly one-third of the company’s total debt. The obligations are payable due by 2010 through 2014. If Otto fails to reach an agreement with creditors, Orco is not likely to get a single Eurocent from the Americans.
Why the long expected savior came with such a requirement? Perhaps it just wanted to make sure its money would not be used to pay off debts but to cover unfinished projects which the company would then sell. But maybe the owner of the Paris St. Germain football club does not believe that Orco will make a deal with the creditors and is not eager to enter an uncertain investment.
Ott will not have an easy position when negotiating with bond holders. Nobody dares to make estimates whether he can succeed. The decision by Colony Capital to hold the money until later have certainly not made them more motivated toward agreement.
On the other hand, it is not in their interest to force the company into liquidation. Orco’s debt now totals EUR 1.5 billion, not including the EUR 88 million it has yet to refinance this year. According to the latest estimates, the value of company assets is now at EUR 2.2 billion but it would be sold below this value a court-ordered sale of assets. Some of the creditors could then end up without getting paid.
It is likely that creditors will therefore demand a stake in Orco in exchange for waiving debts or postponing debt payments. Ott suggested such a scenario on Tuesday already by saying he is looking for possibilities to exchange debt for shares.
It is also possible that even with the money from Colony Capital Orco will not last and will have to seek other investors. Especially if it is not successful selling its assets.
Among those expected to add more capital are the existing shareholders. They have also been offered to buy a share for EUR 7 each.
For every share they own they can buy an extra one. Ott is hoping this would bring him EUR 150 million, including the contribution from Colony. However, some of the shareholders are opposing the move. The “rebellious” union of small shareholders, SOS Orco, condemned the management’s move again on Tuesday. The union’s head Luboš Smrčka, whom Ott is suing over such statements, thinks the agreement with Colony is unreasonable. He is arguing that Colony may not give Orco any money in the end.
The arrival of a big investor will, moreover, reduce the amount of property per shareholder, and shares will thus lose value. Some of the shareholders may not like that.
Ott is yet to undergo one big battle. He will confront the shareholders at the general assembly 8 July. SOS, backed, among others, by James Woolf, who is well-known for his participation in the battle over shares in the Kotva department store, will demand Orco’s top management be replaced. He argues that Ott takes wrong steps, is not capable of reaching an agreement with creditors and looks for an investor instead.
The SOS union, however, has not yet come up with an alternative solution. And although its chances might have appeared promising in the beginning of the “fight” now Otto seems to be getting in a better position. The current leadership is backed not only by Martin Burda, the largest shareholder among individuals with a 3% stake, but also by the biggest shareholder, the Prosperita investment company. Its representatives will gain, and so will Burda, a seat in the top management. Prosperita said on Tuesday it considers the agreement with Colony Capital useful.
It seems though that Ott will defend his position. But he will have a lot to decide. Tough months are awaiting him and the question is whether he will be able to say one year from now: “We survived the crisis.”
