Raul Toomsalu: The sale of Operail’s assets is professionally organised 

Added on 30.09.2022

AS Operail’s owner and management board are interested in maximising their revenue from the sale of assets. This is a primary focus when choosing the sales method and in determining the winner of the competition. 

The sale has never been confidential

The Estonian State decided in favour of exiting Operail’s non-strategic business areas in 2016, when this idea was also included in the coalition agreement. In April 2021, the Government decided to initiate the process of withdrawing from these business areas in practice. The decision was also widely covered in the media at that time.

The reason for selling is quite simple: the State has affirmed that it is not its role to conduct business in areas where the private sector can manage. For the State, it is reasonable only to own strategic businesses providing services that are vital for the country or which may not be able to support themselves commercially in market economy conditions but are nonetheless necessary. Of Operail’s activities, rail freight transport is considered of strategic importance.

Our other lines of activity, such as freight transport in Finland, wagon rental and rolling stock construction, are not of strategic importance for the State and can support themselves economically in the market; therefore, the State wishes to withdraw from these business areas. Thus, the sale of the wagon rental business, which critics have found difficult to comprehend, is not because the business has failed. On the contrary, to date the business has been very successful.

From the outset, the plan has been to sell it to a strategic or financial investor. It has never been our plan to go public or to sell it by public auction. Nor has our plan ever been presented to the public in any other way.

Over the course of last year, we completed all the preliminary work required for the sale: we transferred our non-strategic businesses separately into legal bodies, established a new group intended for sale called Operail Holding OÜ, began the due diligence processes and conducted audits. By the beginning of 2022, we were ready for the sale. Then war started.

This year, the plan has changed only in one detail: before Russia’s invasion of Ukraine, the most appropriate method of exiting the business was the sale of a 51% shareholding in subsidiaries. However, the situation has changed because of the war, and now the most reasonable approach is to start the process of exiting the business areas by selling the assets of the wagon rental business.

The sales process is being conducted professionally

The experienced financial adviser Superia, which organises asset sales via public auctions, was chosen to lead the sales process through open competition.

In media coverage, the dominant message has been the following accusation: why hire a professional adviser and organise a process independent of the Board when you could simply publish a sales advert in a sales portal (like selling an apartment or car)? This accusation is ill-informed. A public auction through a newspaper advertisement is not a viable option or the best process for the seller of such a large asset.

This sale involves assets that are substantial, highly specific and worth tens of millions of euros.

To help potential buyers evaluate the asset’s value and arrange the financial terms of their offer, the seller shares a large volume of confidential customer and commercial information with the buyer in order for detailed analysis to be undertaken. This is conducted in a special highly controlled environment and all potential buyers are treated equally.

Each party involved in the buying process undergoes a background check. Furthermore, in such a large-scale transaction, responding to all the buyers’ questions is a highly time-consuming and resource-intensive operation, which is why entire teams are tasked with this.

This ensures that only those investors who are serious about buying the asset and have the financial capacity to do so participate in the competition. The process is fair, well documented and professionally conducted: all serious participants in the rail wagon business/freight transport industry who have the above-mentioned desire and capacity are involved.

The sale of assets in this manner, i.e., through a public auction arranged by a neutral professional financial adviser, is nothing extraordinary or mysterious; in fact, it is standard practice. Assets of this type – including both private companies and state-owned companies – are almost always sold in this manner. For example, the same procedure was used when the state-owned company Omniva sold its participation in Maksekeskus (MakeCommerce) this winter, when the previously state-owned company Eesti Energia sold its project in Jordan and when Eesti Energia’s subsidiary Enefit Green sold its biogas plants.

The process ensures maximum results

The sale process consists of multiple stages. In the first stage, a wide circle of interested parties was involved. The investors who signed a confidentiality agreement were given the opportunity to make an indicative offer for the acquisition of assets or shareholdings in companies based on the initial information shared.

Based on the indications received in the first stage, the professional adviser and Supervisory Board along with the Management Board reached the conclusion that it is economically more reasonable to sell the entity in parts, not as a whole, since the sum of the value of the total received indications for parts was larger than the sale of the whole entity as a single transaction. It was also concluded that the sale of the wagon fleet is more feasible if we sell wagons instead of shareholdings in subsidiaries owning the assets. Furthermore, after analysing the offers, it was concluded that as a first step it would be reasonable to sell the assets of the wagon rental business.

Based on the indicative offers and conclusions, the adviser initiated the second stage of the sales process, which all parties who made a serious and credible offer in the first stage were invited to join. The opportunity was presented to more than 40 investors. Currently, the process is in its final stage. The asset is being sold to the bidder who makes the highest offer in the second round.

The asset is being sold to the bidder who makes the highest offer

Operail’s owner and management board are interested in maximising their revenue from the sale of their assets. This is a primary focus when choosing the sales method and participants in the competition, and in determining the winner.

Now, however, competitors and potential buyers have begun commenting or have been invited to comment on the sale in the media. What is their interest in doing this? It is not in the interest of either competitors or buyers to stand for the most optimal sales process and the highest possible price for the seller, i.e., the Estonian State – in fact, quite the opposite.

It is perfectly understandable that journalists and the general public have a strong interest in the sales of a state-owned company’s assets. However, it is important to note that the Commercial Code applies to everyone, including companies owned by the State, and that the protection of business secrets is also in the interests of Operail’s owner.