Poland Fires Utility's CEO Who Didn't Buy Loss-Making Mine

  • Tauron's new boss says buying coal mine may be ``opportunity''
  • Utility's shares drop 35% this year amid coal M&A discussions

The government-controlled supervisory board of Poland’s second-biggest utility dismissed the chief executive of Tauron Polska Energia SA after he failed to buy a loss-making coal mine. His successor said such a purchase may be an “opportunity.”

The board on Thursday fired Dariusz Lubera, the company’s CEO since 2008, along with two of his deputies, triggering the resignation of Chief Financial Officer Krzysztof Zawadzki. Newly appointed boss Jerzy Kurella said that building a “strong coal and power group” could increase value for Tauron shareholders.

The government is under pressure to revamp Poland’s coal industry amid threats by miners’ unions to restart protests before the Oct. 25 general election, which opinion polls already show will be won by the opposition. While Tauron said it’s interested in purchasing the state-owned Brzeszcze coal mine in January, it offered a “symbolic zloty” for the asset in August after checking its books. The sale was suspended this week.

“The new management may submit more generous offer for Brzeszcze mine and may be less heavy-handed towards trade unions in order to avoid social unrest,” Robert Maj, an analyst at Haitong Bank SA in Warsaw, said on Friday. “It’s not a secret that the previous management wanted to pare down its involvement in the coal sector to an absolute minimum, which annoyed the State Treasury.”

‘No Tools’

The ousted executives said in a statement on Thursday that the board must take “full responsibility for the company’s present and future financial standing” as well as potential “reputation risk.” Tauron shares dropped 0.9 percent to 3.23 zloty at 12:06 p.m. in Warsaw, heading for the lowest close in six-weeks and valuing the company at 5.6 billion zloty ($1.5 billion). The stock lost 0.6 percent on Thursday.

Treasury Minister Andrzej Czerwinski said in August that he expects to complete the Brzeszcze deal in September. When announcing on Wednesday the government’s latest coal overhaul plan, based in part on “voluntary” purchases of coal assets by state-controlled utilities, Czerwinski said he had “no tools” to force power companies to invest. Poland’s coal industry suffered 1.45 billion zloty in losses in the first six months of 2015.

Tauron share price in 2015, compared with Polish electricity prices and global coal prices
Tauron share price in 2015, compared with Polish electricity prices and global coal prices

“In current market conditions buying a coal mine may be a good investment opportunity that will allow Tauron to build a strong coal and power group and increase its value for shareholders,” Kurella, a former boss of Poland’s biggest gas company PGNiG SA, said in an e-mailed statement on Thursday. He also told PAP newswire that buying Brzeszcze is “important” for the new management and should be done as soon as possible.

Tauron’s shares have tumbled 36 percent this year, compared with an 11 percent decline on Warsaw’s WIG20 Index of Poland’s biggest and most-liquid companies. The company trades at lower multiples than its regional peers, except for Poland’s leading power producer PGE SA, which is also under pressure to buy coal assets.

EV/Ebitda ratio for Tauron, its 3 Polish competitors as well as Czech Republic's CEZ
EV/Ebitda ratio for Tauron, its 3 Polish competitors as well as Czech Republic's CEZ

“The Treasury Ministry, as a significant shareholder, expects Tauron’s new management to take rational and business-oriented decisions,” it said in an e-mail to Bloomberg on Thursday. The ministry said Lubera’s dismissal was an “expression of the overall assessment of the management’s work” and didn’t specify if it had anything to do with Brzeszcze.

Lubera said the old management board was “safeguarding the interests of the company, its shareholders and employees” because Tauron is “well regarded by the financial markets and among its sector peers.”

“The Treasury is trying to put pressure on the company, to push the investment forward even if the profitability of this business is questionable,” said Michal Potyra, an analyst at UBS Securities in Warsaw, said by phone.

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