Going Public Production Company Through Its a Shares

Co-published section: United Kingdom

About NWR • A pure play hard-coal-mining and coke Going public production company through its A Shares. • A leading supplier of hard coal in the fastest growing region in Europe. Partial exits can benefit PE firms, as a £3.5 billion Czech IPO • Owns five established mines and two coking facilities in northeast Czech shows. Adam Levin and Claudine Ang of Dechert explain Republic. It is pursuing opportunities in n May 2008, the shares of New World cant minority stake, following which RPG Poland and elsewhere. Resources NV (NWR), a Dutch-incor- Industries acquired that majority investor (in • One of the largest industrial groups in the porated company (formerly a 2004) and took OKD private (in 2005), after Czech Republic in terms of assets and wholly-owned subsidiary of RPG a squeeze-out of minority interests. It was one revenues. IIndustries SE) with mining operations in the of the largest leveraged finance transactions in • Second largest private employer in the Czech Republic, were admitted to trading on Central Europe at that time. country with approximately 18,341 the London, Prague and Warsaw stock The restructuring that followed shows the employees and 3,563 contractors. exchanges. The offering, after exercise of the focus that private equity houses can bring to a greenshoe option, was approximately £1.3 business. This included: the consolidation of the billion (approximately $2.5 billion) resulting mining businesses within one entity, OKD, the Mining Division or its assets. The IPO was in a market capitalisation of about £3.5 bil- rather than the five entities within which the only with respect to the A Shares. RPG lion, the largest European IPO to date in assets had been partially held, and the demerger Industries has retained the B Shares. 2008. Post-IPO, RPG Industries holds or sale of the company’s non-mining businesses: approximately 63.8% of the shares in NWR. initially demerging OKD’s non-mining proper- Corporate governance RPG Industries is a Cypriot-incorporated ty portfolio and placing it under the direct To allay potential concerns about the rela- company with diversified investments including ownership of RPG Industries; separating real tionship between the two classes of shares and real estate, transportation, and mine and landfill estate used by the company in its mining activ- the operation of the separate businesses, the gas extraction. Its majority shareholders are two ities from the company’s mining operations company adopted divisional policy state- leading private equity players in Europe, (thus creating two separate divisions and the ments to ensure that the Mining Division has Crossroads Capital Investments Inc and Zdenek tracking stock concept); extracting the compa- unrestricted access to the Real Estate Bakala (a Czech financier). Its minority share- ny’s railway assets into a separate legal entity and Division’s property, and that the Mining holders are American Metals & Coal, Inc and placing them under direct ownership of RPG Division and Real Estate Division are man- First Reserve Corporation, both major interna- Industries; and transferring NWR’s mine and aged in the best interests of NWR as a whole. tional private equity investors. The IPO landfill gas extraction business into a separate All dealings between the two divisions are to represents a significant partial exit for all these company wholly owned by RPG Industries, occur on arms’ length terms as if they are separate investors. This article examines the corporate known as Green Gas International BV. The companies. To ensure proper corporate gover- restructure leading up to the IPO, including the recapitalisation included a €1.1 billion senior nance procedures are in place, a real estate use of tracking stock, a tool sometimes used in facility and €300 million high yield bond. committee comprised of NWR’s independent company restructurings, which tracks a division directors has been established. The committee: of a company’s business. Tracking stock oversees the assets and liabilities of the Real Estate Tracking stock is a security issued by a com- Division; manages the interaction between the PE firms bring focus pany to track the performance of a division of divisions in connection with the Real Estate The company undertook a major restructur- its business or a subsidiary. It is used in corpo- Division assets; and reports to, and advises, the ing and recapitalisation before the IPO. rate restructurings to track separate businesses Board regarding the Real Estate Division. OKD a.s. (NWR’s key operating subsidiary) of a company which are not, or cannot be, was previously listed on the Prague Stock separated. As part of its policy of managing its Good for investors Exchange. Its then majority investor acquired real estate business independently from its The tracking stock strategy has benefits and the Czech National Property Fund’s signifi- mining business, RPG Industries wanted to disadvantages. The benefits include: investors transfer NWR’s property portfolio to a sepa- can track the performance of a specific part of IPO information rate legal entity, which it achieved with a company’s business; different investor respect to the non-mining real estate. groups can participate in separate lines of the • Offer priced at top of the price range – However, mining regulations in the Czech company’s business; and shared overheads. £13.25. Republic would not permit land used in mining The disadvantages include: no legal separa- • Total offer valued at £1.3 billion, to be removed before the cessation of mining tion between the divisions so that each can resulting in a market capitalisation of activities. The mining assets and NWR’s real suffer from unrelated liabilities in the other; about £3.5 billion. estate portfolio were partitioned into separate potential corporate governance conflicts; and • Offer over-subscribed at about 7.3 divisions – the Mining Division and the Real potential competition between shareholder times at the top of the price range, Estate Division – and operated separately for groups. amounting to about £9.2 billion. accounting and reporting purposes. To reflect The concept of tracking stock is useful for • Strong institutional demand from all this division, the company’s share capital was re- diversified companies, or large corporations regions in which the shares were organised into two separate classes of shares, or such as NWR which have significant non-core offered. tracking stock: the A Shares track the perform- assets. It is an effective means by which private • Morgan Stanley, Goldman Sachs, ance of the Mining Division; the B Shares track equity and other investors can optimise exits JPMorgan Cazenove as joint sponsors, the performance of the Real Estate Division, from their investments. global co-ordinators and bookrunners. and have no financial rights or entitlements over Dechert represented NWR in its recent IPO.