Firn Brno a.s. was a company originally listed on the Prague Stock Exchange. Firn is a nice Czech word that means the type of icy snow that stings your face when the wind blows. You won't be surprised to know that Firn Brno was a frozen foods company, which primarily produced drstkova polevka (tripe soup) and popsicles. [Hey, if you think drstkova polevka sounds disgusting . . . when you're next in the Czech Republic, drop into a classic (smoky, dirty) pub for a bowl of drstkova polevka and a cold ½ liter mug of draught with a creamy head on it. You'll think that you've died and . . . well, a reliable source tells me that they *do* serve drstkova polevka in Heaven. :-) ]
MY PERSPECTIVE
My wife made an appointment for me with the CEO of Firn Brno to get some information about the company so I could decide whether I wanted to buy their shares. The CEO was a fine man. Unfortunately (for history), he was too naïve about the new openness of democracy, and he was a little intimidated by Westerners. In short, he gave me the company books and allowed me to sit in a small room beside his office, where I poured over the information for an hour.
Based upon my findings, during April to mid-July 1995, I accumulated a chunk of Firn Brno shares without really affecting the price.
Suddenly, in August 1995, the price skyrocketed. I chuckled at first, thinking the CEO of Firn Brno might be nervous that I was trying to get control of the company. However, it soon became clear to me that two buyers were contesting for shares.
When the share price appeared to reach a plateau, I dumped one-third of my shares.
Again, the share price blasted upward.
At the next plateau, I dumped the second third of my shares.
Again, the share price blasted upward.
At the last plateau [for me :-) ], I cashed out of Firn Brno.
Then, the share price went ballistic.
Eventually, the price peaked, and a *huge* number of shares traded. Well, there's one of my "big fish that got away" stories.
BACKGROUND
Before I tell you what was really going on with Firn Brno, I need to explain, by way of example, an important aspect of trading during the early days of the Prague Stock Exchange.
Let's suppose that on one trading day:
Buyer A wants to buy 2000 shares of Firn Brno
Buyer B wants to buy 3000 shares of Firn Brno
Seller A wants to sell 1000 shares of Firn Brno
At the end of the trading day:
Buyer A would receive 400 shares of Firn Brno
Buyer B would receive 600 shares of Firn Brno
In other words, the sold shares were distributed among the buyers in proportion to the size of their orders. (Another element of the paradise that originally existed [but no longer exists] on the Prague Stock Exchange. See my previous thread entitled “Prague Stock Exchange—Roots”.)
WHAT THE HISTORY BOOKS WON'T TELL YOU
The CEO of Firn Brno a.s. decided that he wanted to get a majority of his company's shares, so he took a substantial loan from Investicni a Postovni Banka (IPB).
Unfortunately (for the CEO of Firn Brno), the bank leaked information about his loan to the second "buyer" of Firn shares. Let's call this second buyer "Hajzl". [You can find the translation by yourself. :-) ]
As I explained above, every day that the CEO of Firn Brno submitted a buy order for shares, "Hajzl" also submitted an order, and at the end of the trading day, the CEO of Firn Brno and "Hajzl" split the shares.
Needless to say, the CEO started to get nervous, so he increased the size of his buy order to grab a larger proportion of the shares.
"Hajzl" increased the size of his buy order, too.
You can probably imagine . . . when the CEO of Firn Brno had 35% of his company's shares and "Hajzl" had 35% of the shares, the CEO became *very* nervous that he would not get a majority of the shares.
On the day that Firn Brno's share price peaked, the CEO of Firn Brno submitted a *huge* order. What did "Hajzl" do?
"Hajzl" dumped all of his shares on the CEO.
Maybe, you think that "Hajzl" is a great investor. I don't. Remember, "Hajzl" knew from Investicni a Postovni Banka (IPB) exactly how much money the CEO of Firn Brno had borrowed, so "Hajzl" exactly calculated the highest share price that the CEO could afford to pay. [Personally, I believe that an investor can go through life making comfortable returns *without* resorting to such evil tricks (small "e"--if I have a mood, I will later relate some stories from the "Czech jungle" that begin with a big "E")].
In the end, the CEO of Firn Brno was screwed. He paid a too high price to get a majority of his company's shares. He really didn't "control" his company because he had a huge loan from Investicni a Postovni Banka (IPB). Yup, the bank, in actuality, controlled Firn Brno.
FOLLOW UP
Investicni a Postovni Banka (IPB) eventually crashed in the largest corruption scandal ever to hit the Czech Republic. Roughly 180 billion Czech crowns (that's $10.3 billion at today's exchange rate) was "tunneled" (the politically correct term for "stolen") from the bank, supposedly by its largest shareholder.
Who was the bank's largest shareholder? Nomura, the huge Japanese financial services group. (Rumors have circulated around the Czech Republic that Nomura is controlled by organized crime.) |
