MOSCOW. (RIA Novosti economic commentator Mikhail Khmelev) - Upon acquiring a big stake in Canadian auto parts giant Magna International, Russian mechanical engineering holding Russian Machines (Russkiye Mashiny) has unexpectedly become one of the most influential players on the international automobile market.
It also recruited an ally for expanding on foreign markets.
It is not the first Russian acquisition on the foreign automobile market. Russian Machines plan to invest $300-$400 million annually to expand its business abroad. However, the rate of its expansion abroad may be still higher.
It has spent about $1.54 billion to indirectly acquire 20 million Class A Subordinate Voting Shares of Magna from treasury at $76.83 per share. The offer was forwarded to Magna's board of directors on April 20 and approved on May 9.
Following completion of the transaction, Stronach Trust and Russian Machines will be entitled to nominate six board members each, including at least four independent directors. This will give the Russian company equal rights with Stronach Trust, currently the main beneficiary of Magna.
Russian Machines is a wholly owned subsidiary of Basic Element, one of the largest industrial conglomerates in Russia beneficially held by Oleg Deripaska, evaluated by Forbes as the second-richest man in Russia.
Russian Machines includes airplane manufacturer Aviacor, train car manufacturer Abakanvagonmash and automobile manufacturer GAZ Group, which unites all of the holding's automakers - the Gorky auto works (Nizhni Novgorod), the Ural works in Miass, the Pavlovo bus plant (PAZ, Nizhni Novgorod Region), the Golitstyno bus plant (GolAZ), the Likino-Dulyovo bus plant (LiAZ, near Moscow), the Kurgan bus plant (KAVZ), the Saransk dumpster plant, the Avtodiesel engine plant in Yaroslavl, and several other companies.
The 2006 estimated consolidated revenues of Russian Machines were 116 billion rubles, or approximately $4.5 billion, up 32% year-on-year.
Magna designs, develops and manufactures automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles (at its plant in Graz, Austria). Magna has 235 manufacturing operations and 62 product development and engineering centers in 23 countries.
Its turnover in 2006 totaled $24.18 billion, net profit $548 million, and its capitalization as of May 11, 2007 was $9.23 billion. The main beneficiary of Magna International is Stronach Trust, which belongs to a Canadian family of Austrian descent.
The deal was negotiated for a long time. Before forming an alliance, Magna and Russian Machines agreed on partnership and then on the establishment of a joint venture. The alliance will give Russian Machines access to Magna's advanced technologies, the superior experience of its skilled managers, and modern components base. Magna will be able to buy Russian producers of auto components.
Russian Machines, which has an intimate knowledge of the Russian market, will help the Canadian company to form a portfolio of interesting orders and direct its investment in the segments beneficial to both partners.
The alliance of Deripaska and Magna will not be limited to the production of auto components for the rapidly developing Russian automobile sector. The Russian company will be able to claim promising automobile manufacturing assets, because Magna is a major player on the global market.
It was one of the largest bidders for an 80% stake in Chrysler Group, which DaimlerChrysler put up for sale two months ago. Two months ago, Magna signed an agreement with AvtoVAZ, one of the largest automobile producers in Russia, on the establishment of a joint venture. They agreed to build an auto works with an annual capacity of 480,000 automobiles worth 1.5 billion euros.
Although the Chrysler deal fell through, Russian Machines will not slacken their activity on the acquisition market outside Russia. In spring 2006, it bought from DaimlerChrysler a plant and a complete set of documents for the production of Chrysler Sebring and Dodge Stratus. After that, it bought the U.K.'s LDV Holdings, the producer of the Maxus commercial vehicles.
Russian Machines is now bidding for 72.4% of shares in the Romanian plant Daewoo Automobile Craiova.
The acquisition of a stake in Magna has accelerated the Russian company's international integration, with a promise of its becoming a major international mechanical engineering holding.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
