Magyar multitasking

Szabolcs Czenthe is a man on a mission. Not content with sticking to the daily demands of being head of IR at Hungary’s largest telecoms group, he has taken on a punishing new role that combines investor relations with treasury and M&A.

Clearly no IR amateur, Czenthe has won several IR Magazine Awards during his time in IR at leading Hungarian gas group MOL and as IR chief at his current employer, Magyar Telekom. Even Czenthe admits it hasn’t been plain sailing in his latest tripartite challenge, however, and mistakes have been made along the way. IR magazine certainly doesn’t recommend this job for the faint-hearted.

Branching out
Czenthe began to feel fidgety after five years as Magyar’s IR head, so in 2007 he assumed full responsibility for the company’s M&A activities, while continuing his IR duties. The move was largely orchestrated by Czenthe himself. ‘Our company was a bit strange in having M&A report directly to the CEO, rather than the CFO,’ he explains. ‘M&A is primarily a financial role so it’s better suited to the CFO’s area, which I was used to at MOL.’

The fact that Magyar Telekom’s majority shareholder, Deutsche Telekom, also had its M&A department under the CFO’s remit helped convince Magyar’s management. ‘I put my case to the CEO and the CFO and they agreed that M&A should be a financial, rather than a strategic, responsibility,’ says Czenthe.

This opened up a new position for the company’s ambitious IRO. ‘I felt I had enough capability, knowledge and energy to do something in addition to IR,’ Czenthe says. He explains that M&A duties involve estimating project budgets, running due diligence, populating models, working out non-binding bids, negotiating with the seller, preparing binding documents and even working on legal documents.

As if IR and M&A didn’t keep Czenthe busy enough, he also took on the responsibility of treasurer in July 2008. This time, however, the move was driven by the CFO. ‘He decided to restructure finance and have a leaner organization,’ explains Czenthe.

Internal and external finance were, at the time, categorized in two main areas, with the former including accounting, real estate management, procurement and control. Czenthe’s role was to oversee IR, M&A and treasury activities under the external finance umbrella.

Most of Magyar’s financing comes from Deutsche Telekom, but it also receives financing from Hungarian banks. Czenthe’s duties include making cash deposits as well as dealing with risk management and subsidiary treasuries. Fortunately, he has a head of department and a 10-strong team, as well as the CFO, to help him.

Lessons learned
Since taking on the role of head of M&A, Czenthe narrowly missed securing a very substantial deal. It was early 2008 when Magyar Telekom learned its intended acquisition of Telekom Slovenije had fallen through. ‘We went to the binding phase, but the Slovenian state owners of the company decided to cancel the deal for political reasons,’ recounts Czenthe. If the deal had gone through, it would have been a major triumph for Magyar. With a market cap of €2.5 bn ($3.2 bn), Telekom Slovenije is almost two thirds the size of its Hungarian counterpart.

Czenthe recognizes M&A can be frustrating, but remains philosophical. ‘If you’ve done 90 percent of the job, it’s still a partial success, even if the close is missing,’ he says ruefully. ‘One eye is crying and the other is laughing. We didn’t seal the deal, but it was an amazing experience, and would have led to the largest-ever overseas purchase by a Hungarian firm.’

Czenthe admits there were lessons to be learned regarding his IR role during the takeover attempt. ‘Telekom Slovenije was such a complex deal because of its size and because it was a privatization rather than a simple deal with private equity,’ he points out. ‘You have to talk to politicians and stick to all the tender rules. I had little time for IR – and IR suffered.’

The main problem, Czenthe adds, was his failure to communicate with the IR team. Although he signed a non-disclosure agreement and was not allowed to reveal certain details, the IR team generally makes announcements at key milestones during a transaction. ‘Our IR department was complaining – and with good reason – that I was sharing very little information with it because I was so busy,’ Czenthe says.

The indefatigable deal-doer says his head of department was handling all the IR work. ‘I mistakenly assumed she knew enough details to be able to communicate properly to investors, but that was not the case,’ Czenthe reveals. ‘I didn’t convene meetings with her on a regular basis to let her know what stage we were at in the negotiation process. If I had done, she would have been far more efficient at selling the story to the capital markets.’

Currency complications
A major discrepancy in analyst modeling also arose from analysts’ failure to realize that, unlike Hungary, Slovenia operates in euros. ‘Slovenia’s a much smaller country, so you can’t just assume analysts are fully aware of currency and interest rates,’ says Czenthe. ‘From a cash flow and risk point of view, it’s a good idea to assume financing will be in euros as it’s much cheaper.’

Luckily for Czenthe, his wake-up call arrived in time to start passing on background information. ‘From then on, all the analyst reports improved and we began to receive reliable comment, rather than wrong assumptions,’ he adds. 

Czenthe contests the idea that Chinese walls prevent the same person being in charge of investor relations and M&A.

‘The CFO and CEO are able to meet institutional investors when they do roadshows and they are clued in on both areas,’ he comments. ‘M&A generates deals, but the capital markets decide whether an acquisition is accretive or dilutive. If you’re not directly involved in IR, it’s harder to sell the story to investors and analysts.

‘In the M&A half of my mind I’ll be thinking, Let’s do this deal, it’s great, but then I have to stop and consider the market reaction. You can sell the story to management, but analysts and investors are more skeptical. They won’t be interested if it’s just about synergy, without tangible financial results.’

Capital connections
According to Czenthe, overpaying and shooting in the wrong direction by focusing on non-core or unprofitable businesses are the two major mistakes in M&A.

‘Unlike the average person in charge of M&A, my IR role helps me gauge the capital market reaction, because I know how that market thinks,’ he explains. ‘In turn, running M&A makes me more credible to investors.’

The unstoppable IRO is crossing his fingers that sooner or later the Slovenian state will run a new tender on Telekom Slovenije. Because once Czenthe has set his sights on something, it takes more than a thwarted takeover attempt to stand in his way.