“nationalization” of a publicly traded company – Hungarian Spectrum

by Kevin | Last Updated: April 19, 2020

The last number (no. 78) of Magyar Közlöny, published late Friday night, contained only one item: Government Decree 128/2020 (IV.17) “on the submission of economic establishments by the Hungarian states which are engaged in activities related to measures to be taken in the event of the emergency situation.” We learn from the decree that, after such a takeover, a government commissioner will represent the state. The commissioner has “the exclusive right to decide on matters within the competence of the General Meeting of the Company, including decisions which the management of the joint stock company could make.” In brief, the government commissioner will run the company. Naturally, the decree has no sunset clause.

The first victim of the law was Kartonpack Dobozipari Nyrt in Debrecen, whose stock is traded on the Budapest Stock Exchange (BSE). The company made a special announcement about the takeover, saying that the government commissioner had recalled all the members of the board, the managing director, the members of the board of supervisors, and the members of the audit committee and had replaced them with her own appointees.

Although the decree doesn’t specify the reason for the state’s takeover of the company, it is possible that its justification may rest on the fact that, according to the company’s website, “the pharmaceutical industry holds a key position among [the company’s] client base.” But a company that manufactures “conventional printed folding boxes” for pharmaceuticals and medical and hygiene products doesn’t strike me as being of “strategic importance.” And even if it were, would this provide a valid reason to “nationalize” a publicly traded company?

Edit Szabó, the government commissioner who from now on will be the de facto CEO of the company, is an old Fidesz hand who currently serves as undersecretary in the office of Andrea Bártfai-Mager, minister without portfolio in charge of state properties.

Kartonpack, which employs 100 workers, has had its share of troubles over the years. The primary owner of the company is Csaba Kerék, who was a defendant in the case of Attila Kulcsár, a former broker who embezzled about $50 million. Kerék received a prison sentence and was thus banned from management of the company. The minority owner is Ádám Fintha-Nagy, a lawyer who, it was charged, accumulated his position through insider trading. Earlier, the company was listed on the London Stock Exchange, but it was delisted in May 2018.

Kartonpack was also involved in the scandal at the Csorna solar plant through a company called Ecosolifer, which won EU subsidies to build the plant. OLAF has opened an investigation into the case. According to sources familiar with Kartonpack’s situation, this investigation may be behind the state takeover.

Or perhaps Fidesz is just itching to get back into the world of business. They tried their hands at it in the 1990s, when the party’s bigwigs owned dozens of alleged companies that ended up in bankruptcy. The bizarre story, which presaged the massive corruption to follow, is worth recalling here. I would direct you to my post from 2008.

But, returning to Kartonpack, the company, as of Friday, had a market cap of roughly $27 million, with about 510,000 shares outstanding. There is very little activity in its stock. On Friday, just before the government made its announcement, it traded a grand total of 937 shares and closed flat on the day. No one seems to have had advanced knowledge of the takeover.

Edit Szabó immediately moved into action. She named Sándor Uszkay-Boiskó to be CEO and chairman of the board. Until last year, he was a member of the board of the Hungarian Development Bank. She also found four new board members, at least two of whom have strong ties to Fidesz. Although she also replaced the members of the board of supervisors and the audit committee, in the end, according to Index, these members regained their positions.

I don’t know enough about Hungarian corporate and securities law or EU policies regarding publicly traded companies, but I very much doubt that members of the board of a listed company can be replaced without the approval of the shareholders. I have the feeling that this is not the end of the story, either legally or politically.

The political reaction, as usual, came from the Demokratikus Koalíció. Csaba Molnár, MEP and deputy chairman of DK, is filing a complaint with the European Commission on the Kartonpack case. The reaction to DK’s complaint by the Fidesz media was predictable. Pesti Srácok called Molnár “one of the most harmful members of the Demokratikus Koalíció,” who “offers the homeland to Brussels on a silver platter.”

April 19, 2020