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Austria’s Meinl comes under scrutiny

Meinl European Land (MEL), Austria’s second-largest real estate company by market capitalization, is under investigation by its local regulator, the Financial Market Authority (FMA).

The company has come under fire since it was revealed that it had bought back 52.3 million shares without shareholder approval. Findings by the FMA of wrongdoing could make MEL vulnerable to lawsuits from institutional and private investors. MEL is run by a management company owned by Meinl Bank.

"If the FMA finds out something was going on and they did not obey Austrian stock market rules, Meinl will take some reputational damage," says Roman Herzog, analyst at Vienna-based Raiffeisen Centrobank. "If the outcome of the probe shows some manipulation on the part of Meinl European Land and Meinl Bank, investors could bring lawsuits for many millions."

In August, much to the surprise of investors, MEL announced that it had completed a share buyback on June 20. MEL says it redeemed these shares for a potential convertible bond issue or a secondary listing on a central European stock exchange. At the same time, it said it planned a buyback programme of 90 million shares – 30% of 300 million ordinary shares. According to research from Raiffeisen Centrobank, it is unclear how many shares MEL has bought back since June this year and at what price.

MEL claims that according to the laws of Jersey, where it is incorporated, it is not obliged to seek shareholder approval to initiate a share buyback. The FMA differs on this point, saying that despite MEL’s being Jersey-domiciled it should voluntarily follow the Austrian Stock Companies Act and inform shareholders of its plans.

Since the buyback revelation, MEL’s share price has fallen off a cliff, plummeting to around €10 from a high of €21 in July. There has been speculation that MEL’s management tried to manipulate the stock price before the buyback as well as rumours that the stock would be delisted. In the meantime, MEL has hired Merrill Lynch to advise on changes to its corporate structure, strategy and capital markets standards.

Last month, MEL received a verdict from the FMA, which it plans to appeal against. The FMA judged that MEL might have given misleading signals in connection with the announcement of a shareholders’ meeting held on August 23 2007. Each of the directors on MEL’s board has been fined €20,000.