ISSN: 2560-1601

Vol. 8, No. 2 (SI)

June 2018

Slovenia Economy briefing: Chinese megabrand taking over Helena Motoh

1052 Budapest Petőfi Sándor utca 11.

+36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: Chen Xin Kiadásért felelős személy: Huang Ping china-cee.eu Chinese megabrand Hisense taking over Gorenje

After a long preparation process and an invitation for potential strategic partners, Velenje- based company Gorenje, an important Slovenian producer of home appliances, decided to take the takeover offer of Chinese multinational megabrand Hisense, which made the bid through its Luxembourg branch Hisense Luxembourg . The takeover brings along many significant changes for Gorenje company, some of them still remain an open issue.

Background – recent developments in Gorenje Group Gorenje Group has been one of the key Slovenian companies for more than half a century. Following the changes of the early nineties, company was privatized gradually by 1997 when it became a joint stock company with a state- owned share, which was gradually decreasing. The share of Slovenian state today is run and represented by Pension Fund Management company Kapitalska družba, d. d. and Gorenje Group is considered a strategically important asset for Slovenian economy at large, being one of the key exporters. The role of Gorenje is also crucial locally, since it is an important factor of employment and therefore social stability in Velenje and the surrounding area. In the strategy of managing state investments Gorenje is labeled as »important investment«, meaning that the state ownership can not withdraw from it without a modification of the same strategy made by the parliament. The business results in the previous years were far from desired. The management and the supervisory board was subjected to criticism that despite the good macroeconomic conditions profit was not sufficient to make space for establishing reserves for potentially worse years and the dividends were only paid to the shareholders three years out of last ten. The group of shareholders,

1 led by the former management board member Philip Sluiter, who started the criticism, also pointed at allegedly too close personal relations between members of management and the supervisory board, demanding the resignation of the supervisory board president Marko Voljč, and vice-president Uroš Slavinec. The appeal did not get a sufficient support in early 2018, but did accelerate the changes in Gorenje Group to address the mentioned issues.

Events leading to the bid The main solution presented was that a strategic partner would be sought for in order to guarantee fresh capital and to open access onto world markets of home appliances. In the month before the bid, Hisense was already focused on by Gorenje as the best option for a strategic partnership. According to non- official information, four non-binding bids were submitted in the process, with three of them fulfilling all due requirements. It was speculated that apart from Hisense, two other potential strategic partners from Asia submitted their bids, and , both white goods manufacturers, and the third that was mentioned often in the process, was , a producer of air conditioners. Hisense is one of the biggest manufacturers of sets and white goods in the world, having manufacturing facilities worldwide, including Europe. Hisense Group owns two companies, Hisense Electric and , and several , e. g. Hisense, Kelon, Ronshen. In the period leading to the takeover bid, Hisense obtained a growing percentage of stocks from other owners. Especially in the period between the announcement of the takeover intent and the publication of the bid itself, namely in the second half of May most notably many bigger shareholders also decided to sell their shares. One of them was the International financial Corporation (IFC) from the World Bank group, owner of 11.8% of shares, which were all sold to Hisense, followed by another big shareholder, Croatian businessman Kristijan Floričić. Hisense has also taken hold of almost half of the fiduciary accounts in different banks. The five percent share was also sold by Home Products Europe,

2 led by Philip Sluiter, the initiator of the failed supervisory board change earlier this year. At the end of this process Hisense already owned a considerable share of 32.95%.

Takeover bid On May 29 Hisense published a takeover bid for Gorenje, valid until June 26 with the price of 12 euros per share. Contrary to the initial announcement by Hisense, made on May 11, there is allegedly no success threshold related to the takeover offer – initial announcement was mentioning the 50% plus one share. If this takeover bid is realized Hisense will be paying 293 million euros for the takeover. Gorenje has a big number of shareholders, altogether 11,988, a large part of this number are the small shareholders who got their shares in Gorenje during the process of denationalization. The employees in the Gorenje Group, owners of 2.07 percent of the company, would thereby get 6 million euros, and other natural persons together own 11.46% of Gorenje, a share worth over 33 million euros according to the takeover bid. The published takeover bid included a short presentation of strategy of Hisense after the takeover. Vice president of the Hisense Group, Tang Yeguo, expressed the intent by Hisense to keep and develop the already existing brands of Gorenje Group and the company name. Taking over Gorenje, Hisense promised to keep the management stability, maintaining the seat of the company in its current location and ensuring employment opportunities for the local community. The takeover, according to Hisense, will enable the two complementary companies to merge their production capabilities. Gorenje will therefore produce its own brands, but also expand into producing Hisense brands of , kitchen appliances, and air-conditioning appliances for the European market. The takeover would also enable the two sides to complement their markets, as Gorenje is present in Germany, Scandinavian Countries and Central and Eastern Europe, while Hisense is especially present in Western Europe. Another beneficial change that the takeover promises to bring

3 along is the increase in the financing of research and development, since Hisense dedicates 5% of the income for these purposes on yearly basis.

Fears about the takeover and the status of Gorenje workers On the other hand, there are certain fears about the takeover, expressed especially in the local community. The concerns are mostly due to the fact that the new owner might move the production to an other location with lower labor costs and fewer obligations related to workers benefits. This is especially relevant for Gorenje employees, since the company was renowned in Slovenia for being one of the best employers. Recently there was a lot of tension about the failed negotiations for the new collective agreement between the management and the workers' syndicate, the latter insisting on keeping the good conditions for Gorenje workers. Finally a new collective agreement has been negotiated between the two sides on June 1. It replaced a three decades old collective agreement and is better suited to changed legal environment of Slovenia and European Union. As of now, both sides seem satisfied with the reached agreement, although the details of the contract have not yet been made public.

Changes in management and supervisory board Despite the takeover offer is still not closed and the precise results of the process are unclear, Gorenje called a meeting of shareholders for June 12. In preparation for the takeover, the new members have been allegedly coordinated with the Hisense representatives as well, three of which were present at the shareholders meeting. Old supervisory board has nominated six members for the new management board. Three members remain the same as in the previous setup, President of the management board Franjo Bobinac, worker's representative Drago Bahun, and Žiga Debeljak. The three new members are Stanka Pejanović, general manager of Gorenje Beograd, one of the biggest Gorenje Group

4 companies abroad; Tomaž Korošec, advisor of the president of the management board; and Saša Marković from Electronics North America. On the shareholders meeting it was expected that a separate proposal for supervisory board will be formulated on Hisense side, but this did not occur due to legal reasons, since the takeover bid is still not finished. The new supervisory board therefore consists of Bachtiar Djalil, Corinna Claudia Graf, Miha Košak in Bernard Pasquier. The two disputed members in the early 2018 events, Marko Voljč and Uroš Slavinec, are not part of the new supervisory board anymore. The mandate of the supervisory board is until July 2022, and for the change a share of more than 75% is required on the side of the new owner.

Conclusion After a longer period of preparation for a strategic partnership, the recent ownership changes in Gorenje have now proceeded quite rapidly. In one month Hisense was first selected for the most appropriate partner and then started to increase its share in the company to the point of finally publishing a takeover bid, which is still open. The details of the takeover remain unclear until the bid is finished, and so do the future strategies for the state owned share in Gorenje and the decision whether to keep it as a strategic investment with special regulations, as it is the case now. The details of the takeover, as far as the protection of workers and the local community also remain to be specified after the bid is final.

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