POLAND - Eureko, the Netherlands-headquartered insurance group, has finally secured a financial settlement and exit strategy from its ownership of PZU following a long-running dispute with the Polish government.

An agreement has been signed between the Polish Ministry for State Treasury and Eureko to pay the insurer an interim dividend in November 2009 worth €1.85bn (PLN12.75bn) and create a special purpose vehicle which will allow Eureko to eventually sell its shareholding and free up its capital. The SPV will hold 10% of Eureko's total 33% shareholding in PZU while the MST will add 4.9%, and this operation will be sold through an IPO of PZU shares before 1 January 2012.

The agreement backed by all PZU shareholders means Eureko will halt its arbitration, even though Willem van Duin, chairman of the executive board, acknowledged the firm could have gained a large financial benefit if it had pursued the action, as this will unlock its capital from the company and any arbitration timeframe was still uncertain.

The disagreement was sparked after Eureko bought a 30% stake in PZU - when the firm was privatised - and the Polish government then blocked the delivery of a further 21% controlling stake in the company. Eureko started arbitration in 2003 and action has been ongoing since then after the Polish government failed to adhere to a settlement agreement in 2004. (See earlier IPE stories: Poland and Eureko seek final court settlement and Eureko withdraws PZU application)

Under the terms of this settlement - which Eureko officials always hoped would provide it with an exit from PZU - Eureko will receive a dividend payment in November for its 33% shareholding as well as receiving 50% of the MST's dividend, in total worth €1.8bn, and this should generate a profit of €850m, said Gerard van Olphen, chief finance officer at Eureko.

Eureko is entitled to the economic benefits of the SPV in the meantime, and can block any fundamental changes to the SPV, and will give Eureko 100% of the IPO revenues on its 10% holding as well as a unspecified fixed price on the MST's 4.9%, or guaranteed proceeds should there be no IPO before 2012.

The Netherlands-based firm has one veto on the timing of the IPO and it has the option to sell a further 5% of its assets at that time or limit the IPO to the SPV after 2012, while it can also sell 2% of its shareholding on the market annually prior to the IPO, until it holds 13% of shares.

In response, Eureko has agreed to give up its nomination rights to the PZU management board but it is allowed to have one seat from the seven which will be an independent expert concerning the IPO, with the agreement of the MST, and it has agreed it will no longer be active in the Polish financial market.

The entire process, once capital is freed up, is expected to improve Eureko's solvency by 18% by the end of 2009 while the settlement should provide total value of €2.2bn, subject to currency exchanging and hedges already put in place once assets are converted from Polish zloty to euros.
   
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