| The first and so far only attempt by a foreign company to become a full-fledged participant in the Russian pharmaceutical market ended in complete failure. Yesterday it was announced that the ICN pharmaceutical chain, which unites five enterprises and 96 pharmacies and pharmacy kiosks across the country, has finally come under the control of Millhouse Capital, the company that manages the assets of Roman Abramovich. Moreover, the new owners, apparently, paid for this business three times less than what the previous owners, primarily ICN founder Milan Panich, initially expected. The hopes of the former Yugoslav prime minister to gain a foothold in the promising Eastern European market turned out to be unrealistic.
However, Mr. Panich was let down not so much by Russian realities as by his own shareholders. The co-owners of the company registered in California never understood the mysterious Slavic soul of the chairman of the board of directors of ICN, who invested more than $200 million in the development of production and the creation of ICN’s own retail network in Russia. Moreover, they were not delighted with Milan Panich’s plans to continue investing: a year ago, the head of ICN, in a conversation with a correspondent of the Vremya Novostey newspaper, promised to allocate approximately another 200 million for the reconstruction of his factories in our country. The tactical maneuver of dividing ICN into two divisions did not help Mr. Panich, one of which, to the delight of shareholders, was supposed to continue to fight in stable markets, and the other was supposed to deal with Eastern Europe. Shareholders believed that Panich's era at ICN was coming to an end and demanded that the business in Russia be sold. They initially hoped to recover at least $150 million. However, the competition showed that applicants for the Russian inheritance of Milan Panich are ready to pay much less. In the final of the competition, which included Pharmacy Chain 36.6, the OST-West corporation, the pharmaceutical distributor Protek and the investment company Profit House, the latter won.
Profit House has considerable weight in the pharmaceutical market, as it manages the Moscow chain of pharmacies Chudo-Doctor and the Ufa pharmaceutical plant Ufa-Vita. However, as it turned out, in this transaction, Profit House acted only as an intermediary between ICN and Millhouse Capital. Chairman of the Board of Directors of Millhouse Capital Evgeniy Shvidler noted that the transaction is very important for his company, as it seeks to expand its activities by participating in the rapidly growing sectors of the Russian economy. “ICN has prepared a solid base on which we intend to build Russia's largest pharmaceutical company,” said Mr. Shvidler.
The parties refused to disclose the amount of the transaction. However, Millhouse Capital noted that “it accounts for more than 50% of the annual sales of the Russian division of the company.” In 2002 it was about $100 million. However, there are now rumors that the purchase cost Millhouse Capital $55 million. United Financial Group analyst Alexey Krivoshapko believes that this amount is real only if it includes $17 million in ICN debts. Otherwise, says Mr. Krivoshapko, it is too expensive a purchase. “ICN’s profitability is much lower than that of other companies operating in the Russian pharmaceutical market,” the analyst emphasized. -- At the same time, there is an opportunity to increase profitability, otherwise they would not have paid so much money for ICN. Investments are not needed for this. This is not a matter of investment, this is a matter of management. I think that in six months or a year it will be possible to see good results.” Ekaterina SASHENKO
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