You are reading a sample from the Cash Only newsletter, in which Martin Jašminský, Zuzana Kubátová and Jiří Zatloukal comment on events in Czech business every Friday. If you are interested in Cash Only, subscribe newsletter.
——
If PPF leaders have spoken so far about fulfilling the legacy of the late Petr Kellner, decision to stop the merger with Moneta Bank worth 26 billion crowns five minutes before putting on the wedding rings, he has a hunch that it will not be so hot to fulfill the legacy.
–
Petr Kellner always wanted to play in the first league in the fields that were the basis of his business group. Whether it was insurance, financial services, telecommunications or the media. On the contrary, he did not succeed in banking for a long time.
–
Although Air Bank is a modern and successful bank, it is by no means one of the first leagues. This was aptly described by Moneta’s boss Tomáš Spurný when he presented the content of the talks with Kellner at the beginning of the merger negotiations, which began four years ago. Kellner asked why he would team up with another bank when he had an Air Horse in the form of an Air Bank. The answer was that his racehorse had never won anything.
–
The fact that Jiří Šmejc was present during the whole process is also surprising in stopping the merger with Moneta. It culminated last December, when Moneta’s general meeting approved the transaction and PPF assisted in it as the bank’s almost 30 percent shareholder.
–
But some things have really changed since then.
–
On the one hand, there are the arguments put forward by PPF. It can certainly be agreed that the deteriorating macroeconomic and geopolitical situation and the war in Ukraine increase the risk that banks will have to absorb more losses due to the increase in non-performing loans due to the worse financial situation of companies, sole proprietors and households. This would have a negative impact on the growth potential of the newly established bank in the medium term.
–
But it was already clear to both parties to the transaction at the time of the general meeting that the central bank would increase the demands on banks’ capital strength and increase interest rates more significantly due to inflation. For example, the countercyclical reserve practically returns only to the level at which it was before the covid pandemic. So either PPF misjudged it or it does not have enough access to capital to bridge this period.
–
But there is one new, more substantial change. Jiří Šmejc has become the new sheriff of PPF, who will not receive any salary for managing the group, but after three years he will be able to exercise the option to buy up to a ten percent stake if he can increase the value of the PPF group as agreed with Renata Kellnerová. And what exactly they agreed on, the two of them know, and three years is not a long time. Jiří Šmejc thus logically paves the way for which he is convinced that he will make him a ten percent co-owner of the largest business group. This share would be twice as large as in the whole of PPF in the past.
–
Šmejc intends to behave opportunistically, which is a way of thinking and behaving that he and the entire PPF have subscribed to in the past. Although PPF has significantly tarnished its reputation in the market by stopping the merger at this stage, a good reputation in itself will not make Šmejka a PPF shareholder.
–
So the question arises as to what else might follow after the merger with Moneta. The Air Bank Group, which also includes PPF’s Czech and Slovak Home Credit and Zonka’s credit platform, will remain on sale. Through organic growth, Air Bank will not move dramatically up the banking ladder, where it ranks halfway behind Fio Bank in terms of the number of clients and the size of its banks. If PPF wants to grow significantly, this is not the way without a merger with a larger bank.
–
The sale of the global Home Credit group will also continue. After the sale of activities in Russia, which from a financial point of view was definitely not terno, is the turn of Asia, where PPF is said to be negotiating with several bidders. Here, however, it will be necessary to solve the problem that the technological hearts of the individual parts of Home Credit are in the Czech Republic, which can be a problem for those interested.
–
The biotechnology company Sotio, which works on the development of drugs against various types of cancer, can certainly get on Šmejc’s list. There can also be a lot of tension within PPF’s management, because if any of the group’s companies can be perceived as a great Kellner legacy, it is Sotio. But it is a long-term subsidized company and Šmejc has to work on value growth.
–
So there’s the other side of the coin and that’s growth. The current crisis will certainly bring a number of opportunities to buy companies that will fit into the nascent strategy. If we look, for example, at the fields in which Šmejc’s company Emma capital operates and which the new head of PPF trusts, these are the areas of e-commerce, green energy, gaming and healthcare in the form of drug distribution and assisted reproduction.
–
Whether after the death of Petr Kellner there was speculation as to whether PPF will focus in the future on preserving value for its heirs, or whether it will continue to profile itself as a predatory and growing group, it is clear with the arrival of Jiří Šmejc. And I think that during the three-year journey for his share in PPF, he will perform properly and there may be no shortage of surprises.
–
Are you interested in Jaromír Jágr’s business plans or the successes of Czech startups? Subscribe You will receive a Cash Only and a complete newsletter in your inbox every Friday.
—
