Lindex Group (Stockmann Group)

Stocks
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CORRECTION CORRECTION CORRECTION

I don’t know if other commenters knew what this decision was actually about, but I at least got it wrong and deleted my previous post. So, this was NOT about the previous arbitration award between Lindex and LähiTapiola being overturned, which ordered large compensations (there is a separate case in the district court regarding that, which won’t go to trial until late this year). As an attentive reader noticed, this was a dispute between Stockmann AS, i.e., the Estonian company, and LähiTapiola regarding what is considered the amount of compensation in the restructuring proceedings. So, a win of sorts for Lindex, but the arbitration award is still in force, and thus there is no reason/grounds to, for example, cancel that 16 MEUR expense provision. So, the battle continues in this regard.

The good side to this is that, therefore, the continuation of the restructuring process should not be an obstacle to the progress of the structural change, as information regarding the strategic review has been promised (even today) still within this year, even though the restructuring disputes will likely drag on into next year at this rate. I have thus been a bit off in my most recent comments in this regard; I need to change the wording in the upcoming earnings comment a bit.

I spoke with the company’s General Counsel Naulapää about the matter, so the facts should be clear now.

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This in CAPS LOCK in the title of Monday’s update report. Thanks @Rauli_Juva for clarifying!

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Note that conditional form, though :slight_smile:

Ugh, first time getting too few characters

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Yeah, hand up here too as a sign of an error now that I’ve finally had time to look into the decision properly; during the day I only read the actual decision part.

In short, here is what this is about:

The restructuring program was approved in accordance with the administrator’s proposal in the District Court’s (KO) decision on February 9, 2021. According to it, Lindex (then still Stockmann) must pay LähiTapiola (LT) about €3.5M in compensation, i.e., the amount of the 18-month rent difference (new “cheap” contract vs. old “expensive” contract). LT demanded that the compensation amount be €43M (so-called full compensation). The District Court also decided as follows:

The District Court orders that Nordika II SHQ Oy, Rodareal Oy,
and Vantaan Valo Ky, Fennia Mutual Insurance Company,
Tampereen Seudun Osuuspankki, LähiTapiola
Keskuskiinteistöt Ky, Kauppakeskus Hansa Ky,
HOK-Elanto Liiketoiminta Oy, Pirkanmaan Osuuskauppa
as well as Turun Osuuskauppa must each bring
the matter concerning the amount of their damages claims for examination
in separate legal proceedings or other such
intended procedure, which must be initiated within three
months of the issuance of this decision, if they
want their claims to be taken into account differently than
stipulated in the restructuring program.

Well, LT demanded that their compensation claim be handled by the Arbitration Institute (VMK). This was opposed by Stockmann AS and Oyj. Why the Estonian branch is involved here, I don’t remember other than that I’ve written something about it here before.

On August 31, 2022, the Arbitration Institute (VMK) gave its decision, according to which Stockmann must compensate LT about €19M, i.e., about €16M more than in the restructuring program. A €16M provision has been made for this, so in terms of the result, it has already been “paid.”

Then, at some point in the spring of 2021, LT also filed a lawsuit against Stockmann Oyj and AS in the Helsinki District Court (KO) because these parties had denied the validity of the arbitration clause in the lease agreement during a restructuring situation. If LT had not filed this lawsuit, then the compensation according to the restructuring program (€3.5M) would have automatically remained in force in the event that separate legal proceedings (Western Uusimaa District Court / L-U KO) determined that the arbitration clause was not valid in a corporate restructuring situation. In other words, LT wanted to cover their bases.

The decision given today was therefore a decision on this “base-covering” case, and Stockmann won it 100-0.

LT will almost certainly file a notice of dissatisfaction with this decision and appeal to the Court of Appeal, but this case has no significance if the Western Uusimaa District Court (L-U KO) decides that the arbitration clause (i.e., the VMK decision) was valid and the €19M compensation stands. I believe that in this case, Lindex will not appeal, and then this case too will be withdrawn from the process, at which point all legal cases are settled and the termination of the restructuring can be applied for.

So now the best thing would be for the Western Uusimaa District Court (L-U KO) to process that case as soon as possible and for Lindex to lose it.

I will continue on the matter next week; I’ll look into the schedules of the Western Uusimaa District Court (L-U KO).

The reason I went astray here is that I didn’t realize the matter was being handled in the Western Uusimaa District Court (L-U KO). I still don’t understand why (the location of LT’s headquarters is the only explanation), and therefore I haven’t known to ask anything about it from there. I was under the impression that this Helsinki District Court (KO) proceeding concerned the overturning of this Arbitration Institute (VMK) decision, but that wasn’t the case.

Edit: I also don’t quite understand how this only came to court now; by all logic, this was initiated in the spring of 2021 and should have been settled ages ago.

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50

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Why shouldn’t the continuation of the restructuring process be an obstacle to the progress of the structural change?
So, what did yesterday’s decision concretely change? Or is the reasoning that the company is giving this impression?

I think and hope that this means Lindex Group believes it will reach a settlement with LähiTapiola still during this year. That way, the restructuring process would end.

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I have been under the impression all along that the restructuring process does not directly prevent the structural change (edit: i.e., the sale of the department store operations) but facilitates its implementation, which is why the company might have wanted to get the restructuring finalized first. Yesterday’s decision didn’t change anything, but when it became clear that the actual dispute with Lähitapiola will not be resolved in court this year, yet the company still intends to announce the results of the strategic review, these do not seem to be directly linked to each other. This is also how I understood the company’s comments. So, things haven’t changed, but my understanding has :slightly_smiling_face:

It would still definitely be easier if a settlement could be reached with Lähitapiola and the restructuring finalized before or at the same time as the structural change is carried out.

The General Counsel mentioned that the first hearing would be in November. Someone more familiar with legal processes could probably guess when a decision might come; at least the one decided on Friday took quite a long time.

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My current understanding is that this is a binary yes/no solution, i.e., the L-U District Court (L-U KO) will either find that the arbitration clause was valid or it wasn’t; this case is therefore, as I understand it, much simpler than the case that has now been concluded. But I will look into this further.

edit: if I remember correctly, the first preparatory hearing for this concluded case was in April and the actual 3-day main hearing was in May. The decision was originally supposed to be issued at the end of August.

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By the way, here are Friday’s interviews. Our Swedish analyst Lucas handled the Swedish interview this time, and I recommend listening to Susanne in her native language if your understanding is sufficient (the core content is the same, of course).

You can really see and hear from Susanne that she would definitely rather be talking about (and leading) Lindex with its new warehouse in use, instead of restructuring, department stores, and logistics problems. Maybe next year then :slightly_smiling_face:

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Remy Extra: “So selling parts of the group is possible during the restructuring process…!”
Inderes forum: “That’s what we’ve been saying all along”

The strategic review will likely end before the restructuring :thinking:
Why would this happen? Let me read the message from the beginning to understand…

The above describes my own simple train of thought based on hopes and assumptions and is not investment advice

I own a significant amount of Lindex Group shares

–
I wish at least one of my two previous messages would hit the mark, as they are somewhat in conflict with each other… :sweat_smile:

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Key points of the restructuring program:

  • The restructuring program is based on the company continuing department store operations in all current department stores and online e-commerce in Finland and the Baltics. The duration of the program is eight years. The company’s sharpened strategy responds to changes in the operating environment and consumer behavior, and it invests in customer relationships and loyalty by improving the customer experience across all its channels and developing a customer-oriented operating culture by focusing on profitable business.
    This is roughly what was said about the department store business in the restructuring program. The sale of real estate was in the program separately.
    One can always invest in strategy.
    Does it work so that the restructuring is completed first, and only then the next steps follow? Or does the restructuring program need to be amended first in that regard?
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I read the decision issued yesterday by the Helsinki District Court in its entirety. Against its reasoning, that 2022 arbitration outcome appears in a very strange light. In the District Court’s proceedings, statements had been requested from practically all of Finland’s most prominent law firms specializing in insolvency law regarding how Section 27.1 of the Restructuring Act (“reasonable compensation”) has been interpreted in practice for lease agreements. According to all statements, in numerous similar restructurings, an amount corresponding to a maximum of 6–12 months’ rent has been considered reasonable compensation. How on earth did the arbitration tribunal end up granting LT compensation in the magnitude of 10 years’ rent for a contract termination made during the restructuring process? :astonished: Well, we will never know this, as arbitration proceedings are not public.

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Even Erkki wouldn’t understand this anymore, and I’m not talking about Sinkko. Although that level of ignorance would actually be a relief at this point when trying to parse this whole package in my head again.

And I’m not quite sure what to trust when considering what the company and the CEO have been saying. The company still says they will communicate regarding Stockmann’s fate by the end of the year. Why would this be the gospel truth? Previously, everyone thought it was crystal clear, and it was argued quite airtightly that the restructuring cases must be finalized first; now, it doesn’t seem to matter anymore. Mysteriously, “by the end of the year” was timed because of the case resolution, but now it isn’t. Has the company been aware of this themselves all along? Why hasn’t this misunderstanding been corrected anywhere by the company regarding which legal proceeding was in question?

Personally, I see these statements and “strategic review by year-end” mantras as, to put it bluntly, a statement of the outlook at that specific moment. They are given based on what can be communicated at the time, even if profit warnings (negaris) and the like are sometimes written in red on the CEOs’ foreheads (Hi Kamux). After Q2, there was supposed to be a lot of adjustment on the cost side to avoid falling short of the EBIT guidance, but “shit happens” unexpectedly, and now a profit warning is still looming on the near horizon, which I was expecting already. No CEO can go out and say, “we kept the guidance for now but we’ll issue a profit warning later.” Everyone knows that in many instances the CEO is talking bullsh*t and the whole country is waiting for the profit warning, but it’s still often stretched out until it’s given too late. Even “Blind Reetta” usually saw it coming, but what can you do.

Why else would the review of Stockmann’s fate take until the very last minute if it had nothing to do with ending the restructuring? If everything were as clear as everyone thinks—that Stockmann will be sold to the name monster on the owner list—why would it take this long, unless it’s due to the restructuring and the final case dragging on? Since we’ve all been so damn wrong once before, why would the sale of Stockmann be such a likely scenario anymore, or why should it have been in the first place? Wouldn’t it have been sold already if it were to be sold, since, based on everyone’s current understanding, it no longer requires the end of the restructuring? So, why is providing the review taking so long and lasting until the very end of the year?

The Sleepy Sleepers’ line “the more you think about it, the more your head hurts” fits here perfectly. I don’t even understand what I’m writing anymore because everything is getting so tangled up in my thoughts; I’m contradicting my former and current opinions one after the other. Hopefully, I at least jinxed some good Christmas money for the “frogs.” :grin::victory_hand:

Ps. Earlier, I intended to post a bearish message with scenarios such as:
A) profit warning (likely at the moment)
B) Suski leaving the company (poss. disagreements about the future, unwillingness to lead while Stockmann is involved, and weighing that possibility regarding the strategic decision)
C) → (forced) retention of Stockmann in the group

As a sum of these, the bear target price (tp) is just under €1.8 (-40%), and as a reference contrast, the bull target price is €4.5 (+sale and lease of the tin shed). No other alternatives exist, I dare you.

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The fact that an analyst—or especially a private investor named after a bottle of cognac—doesn’t have a clear grasp of the legal disputes involved in the restructuring process doesn’t necessarily mean that the company management and their lawyers aren’t fully aware of everything related to the matter.

You either trust the company’s management, or you don’t.

There won’t be a negative profit warning if Santa Claus and everyone else do enough of their shopping at Lindex and Stockmann. If one does come, however, you can always sell your shares or buy more…

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Because all strategic decisions are easier to make once the restructuring has ended; right now, if any bigger moves are made, they require separate approval from the supervisor, Tähtinen, which is by no means a given, for example, regarding the sale of the department stores.

So, they’ve probably been waiting for these cases to be finalized, but since the process is dragging on, they aren’t going to wait any longer.

I’m planning to write a slightly longer status update tomorrow, once I get a bit more information.

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It just seems to be that neither the company management, analysts, nor those posting on the forum rarely know future events for certain. You have to decide for yourself what to believe :slight_smile:
Regarding the matter itself, Keisari already gave a good answer above; this isn’t a black-and-white issue.

Below is a fresh update, where indeed, even with my forecasts, a profit warning would still be necessary:

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Alright, I’ve dug up some more information, and indeed, there is a hearing in the L-U District Court (L-U KO) in mid-November regarding this matter. I haven’t received answers to everything yet, so the assumption for now is that this hearing specifically concerns whether the arbitration clause in the lease agreement between LT and Lindex was valid or not in a corporate restructuring situation; thus, the decision will be either yes or no. I’ll get back to this once more information becomes available.

A single date has been set for the case, during which both the preliminary hearing and the main hearing will be held. This differs significantly from the case that received a District Court decision last week, where the preliminary hearing scheduled three days for the main hearing a month later, and the case was handled by a panel of three judges. Based on this, I believe the L-U District Court case is considerably simpler and faster; I consider it very possible that a decision could be reached within this year.

Incidentally, one can apply to conclude the restructuring program even if there are open disputes pending, but if nothing has been agreed upon, the opposing parties in the open cases will likely object to the termination of the restructuring in advance, which could prevent approval.

And apparently, it is also possible for Lindex to unilaterally place the disputed funds into an escrow account without the opposing party’s approval; this might be sufficient for the restructuring administrator and the Helsinki District Court, which decides on the matter.

If the L-U District Court decides that the arbitration clause is valid, I am quite sure Lindex will leave the matter there, and things will thus be concluded (consequently, LT would have no reason to appeal the Helsinki District Court’s decision). If, on the other hand, the L-U District Court decides that the arbitration clause is not valid, LT will be in a fairly weak position and might easily accept some x euros extra on top of the 3.5M as a settlement instead of continuing a legal battle that isn’t exactly cheap.

Summa summarum, based on current information, I would consider it quite likely that this matter will be concluded this year so that the strategy update can be released in a situation where at least there are no more open court cases OR they have been agreed to be handled outside the restructuring process, e.g., via an escrow account procedure. Or the matter will simply be settled entirely, ending the disputes there—this is probably the most likely default option. The restructuring cannot be officially concluded before the turn of the year unless the parties reach an agreement quickly.

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I’m surprised that people are surprised about how Lindex can release a strategy update while the restructuring is still ongoing.

The strategy update will look something like this:

Strategy update for 2025-2027

  1. The company aims to find a solution to the last disputed debt claim and end the restructuring.

  2. The company aims to find a buyer for the Stockmann division.

  3. The company investigates the best capital allocation solutions regarding the new logistics center.

  4. The company aims to start paying a sustainable and growing dividend during the strategy period.

  5. Some ESG stuff.

There might be even too direct wordings here.

In any case, the strategy update will NOT look like this:

  1. The company has settled the debts with Lähi-Tapiola and Tähtinen ends the restructuring.

  2. The Stockmann division is sold to party X for price n.

  3. The logistics center is sold to party Y for price m. Lindex leases the center with a 10-year contract. The funds obtained from the operation will be paid to shareholders as a capital repayment in January 2025.

  4. The company starts paying dividends in 2025.

  5. No ESG stuff.

That’s probably true. So I’m even more puzzled as to why the timing of the strategy update is being questioned.

Another good point. You have to be careful whether you’re reading the forum or the company’s communications. The risk of “broken telephone” is high. Fortunately, we have analysts. “Strategic assessment” is indeed the wording the company has used.

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And more text, some replies had arrived in my email.

The following part is so-called legalese, although I’m not a lawyer or a Master of Laws (OTK) or anything; I’ve studied corporate law but haven’t used it in my day job.

So, as I suspected, this is indeed a demand by Lindex for the arbitral award to be declared void or set aside; thus, the L-U District Court (KO) will give a yes/no answer that even humanists can understand. This is good news.

I started browsing case law for fun and found a Supreme Court (KKO) decision from 1998. This is another piece of good news because there is case law with precedents. Of course, at this point, we don’t know yet what points Lindex/the supervisor will appeal to, but as a semi-layman, I’d say they need to pull a pretty big rabbit out of a hat if they intend to win. And a warning here: the law might have changed in this regard; the original case was filed in 1993.

The KKO case can be found with the diary number KKO:1998:152 if someone more familiar with litigation wants to comment. I read through the whole case, but in summary, the result was this:

In the corporate restructuring of a contractor, an instruction regarding the filing of a claim, as referred to in Section 75, paragraph 2 of the Restructuring of Enterprises Act, had been given. The arbitration clause in the construction contract was binding on the housing company.

In other words, the developer and the contractor had made an agreement that included an arbitration clause; the developer had claims against the contractor, who entered corporate restructuring. In the restructuring program, the parties were directed to initiate disputes in separate cases, just like in the Stockmann case. The developer had initiated the matter in the district court, but the contractor said it must be handled in arbitration according to the construction contract. However, the developer had not initiated the matter in arbitration by the deadline, only in the district court.

Well, long story short, all three levels of court, with the Supreme Court (KKO) last, confirmed that if the contract contained an arbitration clause, it binds the parties even if the developer was in corporate restructuring, and thus the public courts did not have jurisdiction in the matter. And since the developer had not brought the case to arbitration (VMK) within the deadline, they no longer had rights. As a side note, it should be mentioned that the developer had a pretty lousy lawyer originally.

It’s hard to understand how the District Court (KO) could decide otherwise in this case since a precedent from the Supreme Court (KKO) exists, meaning Lindex is in a weak position from my perspective.

So, I expect a brutally short trial from this, where Lindex and the supervisor are carried out of the courtroom on stretchers.

Lindex doesn’t want to continue the dispute but rather pay that extra amount of the provision to LT, and all the lawsuits will be wrapped up.

What puzzles me, of course, is why an experienced guy like Tähtinen has chosen to fight this matter despite all of the above; based on that, one could assume the case isn’t quite as simple as described above.

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Points 1 and 3 do not belong in a strategy update; they are more or less operational matters that don’t require actual strategy work.

Point 2 is the most essential part; in addition, the future directions of the Lindex division will be emphasized, e.g., in terms of geography, e-commerce, etc.

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