German Firm Loses Shares in Armenian Company Owned by Gagik Tsarukyan
by Kristine Aghalaryan
July 27, 2009
“Ostinvestor” Fights Back to Regain Stock in “Yerevan Brandy &Wine”
In May, 2006, the German company “Ostinvestor” purchased 1,520 shares of the “Yerevan Ararat Brandy-Wine-Vodka Factory” (YABWV). This amounts to 3.2% of Ararat’s outstanding shares.
In the fall of 2007, “Ostinvestor” shareholders visited the YABWV plant, but were restricted to a small part of the plant’s huge expanse. There, they got to evaluate and appreciate the unique flavor of Armenian cognac.
“Ostinvestor” is a German firm that makes portfolio investments. In the past three years it has entered the Armenian market with a total investment of around $3 million. In October 2007, the firm organized a conference dealing with the Armenian economy and investment opportunities to more than forty investors from Germany, Austria and Switzerland.“At the time of our purchase, the majority stockholder was the Armenian oligarch Gagik Tsarukyan, the richest living Armenian in the country. He holds his shares through his Armenian firm “MultiGroup”. He is a powerful force in Armenian politics and presides over his political party called ” Prosperous Armenia”. The majority shareholder’s background was encouraging to us as political activities led us to trust that proper procedure would be followed,” says “Ostinvestor” CEO Stefan Laxhuber.
In June, 2008, the German firm received a note from the principal shareholder of YABWV, demanding that it sell all its shares since “MultiGroup” wasn’t prepared to recognize the “Ostinvestor” holdings.
“Furthermore, there were several other domestic and foreign minority shareholders. In addition, the purchase price for our block of shares was very low. Suddenly, in June 2008, we were “politely yet forcefully” (the details will be spared) requested to transfer our NOY stock to MultiGroup. The CEO of MultiGroup (his interpreter, rather) shared with us by telephone that the cognac firm now belonged only to MultiGroup. We would have no right to own shares in this company,” continued Stefan Laxhuber.
“Ostinvestor” winds up with nothing after share consolidation
In the end, at a special October 12, 2008, stockholders’ meeting it was decided to consolidate the shares of YABWV by issuing one new share for each 2363.5 held at a valuation of 18,908,000 Armenian drams (approximately 45.212 Euros (hereinafter, all the sums, which originally were in Armenian drams, will be provided in Euros, according to relevant days’ exchange rates))
Before the consolidation of YABWV shares, there were 124 stockholders. Some 82% were held by Gagik Tsarukyan, 10% by “MultiGroup” and about 7% by remaining stockholders. “Ostinvestor” held 3.2%.
Given that “Ostinvestor” only held 1,520 shares and one new share was to be the equivalent of 2,363.5 shares, the German firm wasn’t able to secure even one share of the new stock issue.
What was the reason for the stock consolidation? YABWV’s legal representative, attorney Davit Mantashyan, offered the following explanation, “The world economic crisis had a certain part to play. The plant was practically paralyzed as a result.” According to the attorney, as of October-November of last year there have been practically no sales and this forced the plant to consider a more efficient and flexible management policy.
“Even their presence wouldn’t have particularly hindered the majority stockholder since he could have made decisions on his own. But there are other problems when you enter the international market and try to work in the global investment markets. You have to raise the standing of the company and seek out new financing. In this situation, potential investors would rather deal with one or two individuals and not with 120. This is optimal business practice. When you know that you have a business partner by your side, that isn’t there, one day you have to put a halt to things. For years on end we tried to locate and bring people in. They don’t exist,” says Mr. Mantashyan.
Official figures for the largest tax payers over the past four years tell a different story. In 2006, YABWV placed 166 in the list of largest Armenian taxpayers. In 2007, it moved up to 139th place. In 2008, it came in at 70th place with a tax payment of 2.5 million Euros.
“Ostinvestor” shares drop from 184 to 69 Euros per
As a result of the share consolidation, “Ostinvestor” and the other minor shareholders wound up with fractional shares. This means that these shares were to be sold back to the major holders.
During the special YABWV meeting, a formula for the resale of these fractional shares was worked out. The firm of “En-Audit” pegged the market value of one full share at approximately 69 Euros. “Ostinvestor”, however, had spent 184 Euros per share and thus wound up paying 279.680 Euros for its original 1,520 shares.
According to Article 56 of the RoA “Law regarding stock companies” and the formula reached at the firm’s shareholder meeting, the company bought back a certain number of shares from certain stockholders which resulted in fractional shares due to the consolidation.
On February 12, 2009, records were made of the share buyback at Armenia’s Central Depository.
Taking into account that “Ostinvestor” owned 1,520 shares before the consolidation, the amount accruing from the fractional shares buyback equals 27.467 Euros.
The German company refused to sell its shares at 69 Euros per.
“This is just about 20 % of the price of the last trades and our purchase price. Furthermore, the company has done significantly well since then. And less than 2% of the real market value. With this step MultiGroup intentionally tries to deprive minor shareholders of their owner rights, obviously breaking the Constitution and Legislation of Republic of Armenia,” argues the “Ostinvestor” CEO.
“Ostinvestor” is no longer listed as a shareholder and since it has refused to sell back its shares according to the formula reached, a value of 18 Euros has been set for each share to be closed out.
Is the law powerless against Gagik Tsarukyan?
YABWV had 47,250 outstanding shares. The “En-Audit” firm set a value on each share at 69 Euros. This means that the entire capital base of the company was only 3.26 million Euros including the trademark, property, brandy reserves, licenses, etc.
“According to our valuation-which we do comparing it with similar companies in CIS, Russia and Europe- the whole company YABWV with all its assets is worth more than 200-300 million Euros. So even if we take our lowest valuation of 200 million Euros, we come to a price of 1.710.055 AMD per,(approximately 4232 Euros-)” states Stefan Laxhuber in a letter sent to RoA President Serzh Sargsyan
YABWV attorney Davit Mantashyan notes that any plaintiff in this situation should apply to the courts instead of speaking out against them and place the findings of another valuation on the table in order to litigate the share price.
“I really can’t say what foreign company can conduct such an evaluation. First, any such company, according to the laws on the books, must be licensed in Armenia. If such a firm exists that is willing to come and make an appraisal, we are prepared to hand over all pertinent documentation. They should have gone out and come up with such an appraisal and presented it,” the attorney argues.
“Ostinvestor” has decided to apply to the courts in defense of its rights. The firm had sought the assistance of ten law firms in Armenia to represent its interests in the courts. All declined the job saying that they were afraid of the ramifications. We prefer not to reveal their names at the present time.
Lawyers afraid to defend “Ostinvestor” in courts
Not one attorney has taken the job of defending the German firm in the courts. Those who initially agreed backed out later.
Furthermore, what was needed was another independent appraisal of the company and its shares. “Ostinvestor” also faced the challenge of locating an auditing firm that would conduct such an appraisal. Even internationally known auditing firms declined to help confessing, during private conversations, that it was pointless to do battle with Armenia’s most powerful and wealthy individual.
“In mid-April 2009 Armenian´s Prime Minister Tigran Sargsyan publicly praised “Noy” brandy, produced by YABWV, as a ‘model for the Armenian economy that others should take as an example for its transparency and corporate culture’. He said this despite verifiably having been informed of the details of our problem. There could hardly be a clearer sign that we’re fighting a losing battle,” says Stefan Laxhuber.
In addition to informing the president and prime minister, “Ostinvestor” also contacted a number of other officials regarding the matter. CEO Stefan Laxhauber personally met with RoA Economics Minister Nerses Yeritsyan. The German Embassy in Armenia has also been kept in the loop as well as NASDAQ OMX, the world’s largest exchange company.
“Not from one single Armenian authority did we receive even a hint of an answer. Not one single reply – nothing! What remains is a hypothetical democracy under whose guise national and personal interests dictate dealings with westerners like us,” states the “Ostinvestor” CEO.
Attorney Davit Mantashyan says, ““Ostinvestor” has applied to a host of organizations in Armenia fort help except the courts. I am always amazed that Europeans like to speak about having a legal government, the separation of state powers and the importance of the judicial system. But when they face problems in Armenia they take their case everywhere but the courts.”
Davit Mantashyan is very suspicious when it comes to the existence of “Ostinvestor’s” foreign investors and claims that it has other investors. “I believe that all that exists is a curtain, in the person of the Europeans and “Ostinvestor”. I think that there are other individuals hiding under this curtain; former shareholders from Armenia,” the attorney stated, preferring not to give any names.
“Ostinvestor”, however, argues that its investors are solely foreigners “The vast majority are professional investors from Germany and Austria. We also have few investors from Switzerland and Italy. Some of our investors live in other countries, but none of them lives in Armenia or has Armenian nationality,” Stefan Laxhuber replied when we asked about the investor base.
This information was also checked by the RoA Central Bank. The Bank reviewed the total investor list of “Ostinvestor”, comprised of 180 names.
Some “Yerevan Brandy & Wine” Shareholders Untraceable
After the share consolidation, Gagik Tsarukyan presently owns 80% of YABWV shares and MultiGroup 10%. The rest are subject to closure since about 30 of the 124 shareholders cannot be tracked down. All that exists are names. Several have since passed away.
Attorney Mantashyan claims, “If the law stipulates that we have to complete this process within 30 days, after which a share will have no value at all, you can hang it from a wall. We went along a different route. We weren’t satisfied with 30 days bur rather said ‘dear shareholders, either come forward by July 1, 2009 or make it know that you exist.”
The attorney states that fractional shares surfaced with Gagik Tsarukyan and with MultiGroup but that they were liquidated. “There was absolutely no problem or conflicting factor for “Ostinvestor” to locate the other shareholders and agree to pool the shares or for the firm to increase its share. The company could have added the other the 3%, or a portion of it, to the 3% it had. Had it done so the situation might be different today. But due to its passivity it wound up where it is now,” argues Mr. Mantashyan, perhaps forgetting that he himself stated that most of the other shareholders can’t be found.
Those shareholders that came forth by July 1 were compensated by the company. The shares of those who didn’t, with a value of about 54.455 Euros are being kept in a special “ArdshinInvestBank” account. July 1 has come and gone and 63 shareholders still haven’t received compensation. These include those shareholders who are untraceable.
Other “Yerevan Brandy & Wine” minority shareholders petition courts for redress
Five other shareholders haven’t agreed to the consolidation of YABWV shares and the compensation deal.
On November 14, 2008, Astghik Tadevosyan sought redress in the courts. She owned 33 shares. In December, 2008, Yerevan Civil Court Presiding Judge Samvel Tadevosyan threw out the suit of the plaintiff, dated October 12, 2009, demanding that the decision taken by the special shareholders’ meeting to consolidate YABWV shares be invalidated and that the buyback valuations be reviewed.
The complaints of four other shareholders directed against YABWV are now being heard by the Civil Appeals Court.