Dominic Swire in Prague -

The business landscape in Slovenia is undergoing seismic changes as one of the country's most notorious businessman falls victim to the ongoing global economic crisis, exposing a darker side to Slovenia's squeaky-clean image. As a result, the country is in danger of losing its grip on one of its most treasured companies.

The two largest stakeholders in Slovenia's retail chain Mercator confirmed in March they would sell 25% of their holding in the company, and possibly more, according to a statement from Lasko Brewery, which owns 23.3%, Reuters reported. It had been expected the 25% stake would be snapped up by Serbia's largest company Delta Holding, owned by oligarch Miroslav Miskovic. However, Miskovic is now focusing on renegotiating terms for a planned shopping mall in Ljubljana that his company won a tender for last year, with unnamed sources with knowledge of his business saying his finances are looking less secure as a result of the global financial crisis.

Nevertheless, the thought of a foreign company getting its hands on Mercator has ruffled feathers back home; until now, Mercator has always been a Slovenian-owned company promoting local business, which is perceived to be at risk should the company fall into foreign ownership. However, this possibility is looking increasingly likely thanks to the failings of one of Slovenia's biggest business tycoons.

The controlling stake of over 40% in Mercator is owned by two companies - Lasko Brewery (23.3%), and investment fund Infond Holding (25%). Both companies are owned by one of Slovenia's richest and most controversial businessmen, Bosko Srot, who is currently experiencing some serious financial problems of his own, several sources have informed bne. Srot is currently being investigated by the competition watchdog and financial markets regulator on suspicion of corruption, and is believed to be up to €800m in debt. "He's in serious trouble. Right now he has so many creditors he can't survive... This crisis is going to ruin him," one former business associate told bne on condition of anonymity.

Indebted

Observers believe Srot's mountain of debt, which has been exacerbated by the current financial crisis, is a result of his takeover of Lasko. This was controversial because nobody knew it was happening at the time. The tactic involved a complicated chain of companies that were buying up and passing on small amounts of shares in the brewery. At the end of this chain was Srot. This process had been going on since around 2001. Nobody knows the exact date when Srot passed the 50% mark, but when he eventually came clean in 2008, it transpired he already owned around 90% of the brewery and had been controlling it for around two years. Consequently, Srot was able to take over Lasko at a very low price (if a proposed takeover announcement had been made, Lasko's share price would surely have shot up in value). Technically, this was illegal, as Slovenian law dictates that a change in ownership must be declared.

However, the government's decision to investigate Srot's activities can be traced back to the way he gained control of Mercator, previously a state-owned company. This happened in 2005 through an alleged secret deal between Srot and the prime minister at the time, Janez Jansa. Since his election in 2004, Jansa had been desperate to get his hands on the popular daily newspaper Delo, also owned by Srot through Lasko Breweries. The alleged agreement the two men reached involved Srot handing Jansa editorial control of Delo, while getting permission for Lasko to purchase Mercator at a knock down price in return. The deal went ahead, effectively turning the paper into a mouthpiece for the government overnight.

But it was Jansa who was outmaneuvered in the end. "[Jansa] was downright stupid... He was so hell-bent on controlling Delo, he forgot the obvious loophole: officially the owner was still Lasko Brewery, so they could change supervisory board at any moment," explains political commentator Aljaz Bitenc.

And this is exactly what happened in 2007 when Srot took back editorial control of Delo at a time when Jansa's popularity was particularly low. Naturally, Jansa was furious and subsequently initiated his "war on tycoons" campaign, which ironically gave him the popular boost he was looking for through control of Delo. As a result Srot, Mercator and Lasko are all under investigation by the competition watchdog and the financial markets regulator.

Srot is now busy trying to get his loans extended, with some success. On April 16, the state-controlled NLB Bank confirmed it had extended the deadline by which Srot's Infond Holding must repay its short-term loans, reportedly worth some €150m. However, Jansa, now leader of the opposition Democrats after being voted out of office in 2008, is still nipping at Srot's heels, telling reporters on April 18 that if Srot wants NLB Bank to treat his beverage company just like other clients, then the bank should seize the shares in Mercator that Srot pledged as a loan insurance.

Throughout all this, Srot points out that nothing illegal has ever been uncovered about his dealings and claims the investigation is a politically inspired plot aimed at forcing him to relinquish his stake in Mercator. Whether or not this is the case, if reports of his financial health are true, then keeping it may not be an option.

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