Casino mogul sells life’s work

Armin Karu. PHOTO: Eero Vabamägi

“It is sad, there is no activity on the market,” said then head of the Tallinn exchange Kaidi Ruusalep two minutes after the shares of gambling operator Olympic Entertainment Group came up for trade on October 23, 2006. “You can use this time to eat sandwiches,” said majority owner Armin Karu.

Back then, shares were subject to a daily price fluctuation limit of 15 percent of share price. Trading was halted when the limit was reached. The exchange decided to move the limit to 25 percent, so trading could continue.

As it was the peak of the stock exchange boom, shares of Olympic EG were popular. The company’s IPO was and remains one of the most successful initial offerings in the history of the Baltic states. Its total volume came to 1.124 billion kroons (€72 million) while 7.5 billion kroons (€479 million) worth of requests were made.

“It is a historic result – no Baltic company has seen 7.5 billion kroons worth of requests before,” said head of stock markets at Hansapank Lauri Lind at the time. Lind was also the main organizer of the IPO.

Olympic taking to the exchange was a real jackpot for major owners Armin Karu and Jaan Korpusov as well as thousands of small shareholders. Karu became the wealthiest man in Estonia overnight. His assets were estimated at €220 million by the end of the first day of trading and €347 million by the end of the first year. Today, Äripäev puts the assets of Estonia’s wealthiest person, forestry mogul  Raul Kirjanen at €226.7 million.

Karu and Korpusov have now decided to sell their life’s work. The company announced yesterday that the men will sell their holdings to private capital firm Novalpina Capital at €1.9 per share.

Armin Karu owns 68.36 million shares through Hansa Asset, or 45.05 percent of Olympic EG, while Jaan Korpusov owns 28.76 million shares through Hendeya Invest, good enough for 18.95 percent of all shares.

Armin Karu will make €130 million from sale of shares to which he can add €6 million for a 5-percent holding in Olympic EG subsidiary Olympic Casino. Karu will get a total of €136 million and Korpusov €55 million from sale of shares.

The takeover puts the market price of Olympic EG at €288 million that makes it the third-fourth most valuable company on the Tallinn exchange together with LHV Group. The company communicated it will make a takeover bid to all small shareholders and plans to withdraw from the exchange.

Karu and Korpusov own a total of 64 percent of Olympic EG’s shares. The remaining 36 percent are owned by roughly 5,000 small shareholders who include foreign institutional investors, pension funds, local businessmen and individuals. While Olympic EG announced that the share price is more than 3 percent higher than the six-month average, because it is three cents lower than the closing price on Friday, shareholders are less than happy with the offer.

Head of SEB Varahaldus Sven Kunsing compared it to the takeover of Eesti Telekom by Telia in which the price was found to be too low by the court later. The price of Olympic EG in recent years has been similar to the bid price.

“And times are different compared to the Telekom takeover; valuations are high, there is optimism. The offer is rather mediocre in this light,” Kunsing said.

The company also communicated that last year’s profit belongs to the new owner, meaning that shareholders will not be teated to more dividends. Small shareholders Postimees questioned were not happy. It is hard to say whether the takeover will succeed. Olympic’s share turnover was €4 million yesterday, compared to the six-month average daily turnover of €90,000. Major turnover did not translate into price movement. Market participants said the shares were bought by LHV that is acting as Karu and Korpusov’s financial adviser in the transaction.

Olympic EG’s small shareholders find themselves over a barrel. Novalpina Capital said it plans to remove the company from the exchange. This only requires a simple majority of the shareholders’ meeting, or 50 percent of votes. Odyssey Europe, part of Novalpina Group, believes the firm will get two-thirds of shares.

It is likely that Odyssey Europe will soon hit its target as more than two million shares, 1.3 percent of total shares, changed hands yesterday. This means that Olympic EG might be taken off the market even if small shareholders refuse the bid.

It is unlikely the company will pay dividends in the coming years. The private capital firm will not hold on to the company forever and will likely sell it or list it once more in five to seven years. Therefore, these seems to be little sense in turning down the takeover bid.

Armin Karu did not wish to explain in detail why the major owners are selling their holdings.

“First, because the offer is fair and good for me as a shareholder. The second important reason is that it’s good for Olympic,” Karu told Postimees. Perhaps the reason for the sale is that the company’s value has remained stagnant in recent years.