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Russian Machines buys stake in Magna
Oleg Deripaska is building up his engineering empire, expanding abroad, as he promised after purchasing the English LDV plant last year. He will become a shareholder in the Canadian Magna group , the world's largest company for the production, development and implementation of automotive systems, assemblies, modules and components, whose annual revenue exceeds $20 billion and whose divisions operate in 23 countries. Magna is a supplier to General Motors, BMW, etc. Magna came to Russia last year, concluding agreements with two of the largest Russian automakers - AvtoVAZ and GAZ. The new industrial assembly regime allowed the company to open its own production in Russia on preferential terms. But she chose to find a partner here.Yesterday, the management structure of Oleg Deripaska's mechanical engineering business, the Russian Machines company (a 100 percent subsidiary of Basic Element), and the Canadian group officially announced that Russian Machines will buy back "20 million shares of Magna class A treasury subordinated voting shares "for $1.54 billion. As the report says, these securities, along with shares of Stronach Trust, the current main shareholder of the Canadian group, and shares of "certain shareholders - executives of Magna" will be included in the holding that is now being created, which will gain control of Magna and will be registered in Canada.
Thus, Oleg Deripaska’s engineering business is becoming truly global. And the Russian divisions of his company can gain access to the latest technologies, which creates an undeniable competitive advantage for them. However, control in Magna structures will be shared with the current controlling shareholders of the Canadian company - the Stronach clan.
As Alexander Filatov, director of strategy for Russian Machines, explained to Vremya Novostei, Russian Machines and Stronach Trust will control the company on a parity basis. These two entities will own more than half of Magna's shares. The remaining shares are in free circulation. “It is still incorrect to say exactly what share of Magna will belong to Russian Machines,” clarifies Mr. Filatov: the formation of the group’s ownership structure continues.
The offer to purchase Magna, as follows from the message, was made by Russian Machines on April 21. It gave a 30% premium to the stock price at that time based on the calculation of their value over the previous 20 trading days. But the conclusion of the deal was preceded by long negotiations. “You understand,” says Mr. Filatov, “negotiations are a long process. It took us about a year.” The partners realized the feasibility of the deal in stages. “At first, the companies (Magna and Russian Machines - Ed. ) agreed on a partnership in Russia, then on the creation of a joint venture,” explains the chief strategist of Russian Machines, “as a result of these interactions, the companies realized that they have something complement each other and that they have enormous potential for interaction.” At this stage, the deal does not provide for the possibility of options for the partners to purchase shares from each other. “We are talking about a long-term parity partnership, there are no options yet,” says Mr. Filatov.
After completing the formation of the holding, Stronach Trust and Russian Machines will each be able to nominate six representatives to Magna’s board of directors. Moreover, four of the candidates nominated by each party must be independent. Two additional members will be nominated to the board by Magna's co-managing directors. According to Mr. Filatov, Russian Machines has not yet decided on its candidates: “We are currently reviewing the list of potential independent directors; who will be nominated from Russian Machines has not yet been decided.”
In addition to purchasing shares of Magna itself, Russian Machines will purchase for $150 million a 50% stake in a company affiliated with Stronach & Co, which offers consulting services to Magna. Upon completion of this transaction, Russian Machines will be entitled to receive up to 50% of the consulting fees Magna pays.
The alliance being created within Magna itself looks promising. Russian mechanical engineering received a new vector after the law on “industrial assembly” was adopted and extended to the production of auto components: “Russian Machines” (the main asset managed by the company is the GAZ Group. - Ed. ) have experience in engineering business in Russia, Magna has advanced production technologies, highly qualified management personnel and diversification almost throughout the world. The company has barely begun to explore Russia and, apparently, has decided that it is better to do this with a reliable local partner, and in the case of Russian Machines, a very wealthy one. “The proposed alliance with Basic Element and the founder and chairman of the supervisory board of this company, Oleg Deripaska, represents promising opportunities for our company,” Frank Stronach, chairman of the board of directors of Magna, was quoted in the company’s statement. “Our partnership will allow Magna to increase its presence in Russia and neighboring countries - markets that offer great prospects for us.” Mr. Deripaska, of course, is also pleased with the new acquisition: “We constantly strive to look for opportunities to strengthen our leading position in the Russian automotive market. Our partnership with Magna gives us unique competitive advantages and significant potential for growth in the Russian and neighboring markets. We already have positive experience of cooperation with Magna in implementing projects in Russia and are confident that Magna, being a large global company, will help us achieve our goals in the international arena.”
As Alexander Filatov says, Magna understands that Russia is a priority among emerging markets. It has been developed by foreign companies much less than other developing markets - Brazilian, Chinese, Indian - and can serve as an entry point to the markets of the CIS countries. But Mr. Filatov notes that there can be no talk of changing Magna’s strategy in Russia with the arrival of Russian Machines: “This strategy was developed by Magna management, Russian Machines do not intend to adjust it, but will provide new opportunities for the company’s development in Russian market. We will set more aggressive goals for emerging markets.”
One of the main vectors for the development of Magna’s activities in Russia after the arrival of Russian Machines will be the purchase of domestic components production enterprises, says Mr. Filatov. Russian Machines, which is closely acquainted with Russian manufacturers, will help Magna decide on acquisition targets. But for now, the portfolio of assets that may be of interest to a Canadian company is just being formed.