Johnson's Russia List
9 December 2002
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A CDI Project
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#17
Cash-rich Russian corporations go on foreign buying spree
AFP
December 8, 2002
Boasting healthy cash reserves, major Russian corporations have embarked on
a foreign buying spree that could one day culminate in a take-over of one of
Fortune magazine's top 500 world-wide firms, analysts say.
In the latest headline-grabbing deal last month, Russian metals giant
Norilsk Nickel announced it was to acquire a majority holding in the US
mining company Stillwater for 341 million dollars (euros).
US shareholders in the firm, which is North America's only producer of
precious metals palladium and platinum, will have to give their green light
to the take-over at a general assembly next spring. Last year, the biggest
Russian oil producer, LUKoil, also moved into the United States, buying the
US oil distribution company Getty Petroleum Marketing, which operates a
network of 1,300 gas stations in around 30 states.
LUKoil's chairman Vagit Alekperov is considering buying a refinery in the
eastern United States later this year.
"Cash-rich Russian companies are reaching beyond Russia's borders to take
advantage of investment opportunities," commented Alexei Zabotkine from
finance house UFG.
The trend began in 1999 to 2000 and "has been gaining momentum over the
past two years," he said in a research note, adding that the pace of
foreign acquisitions "will expand in the coming years."
Russian companies are mainly concentrating on familiar territory in former
Soviet republics, including the three Baltic states, in a "reconquest of
the former Soviet Union's economic territory," the analyst pointed out.
For example, Russia's king of fruit juice and dairy products Wimm Bill Dann
took control of several dairies in Ukraine this year.
The top Russian mobile phone operator MTS has expanded into Belarus and in
early November signed a deal to buy a majority stake in Ukrainian operator
UMC for nearly 200 million dollars, the biggest foreign acquisition made by
a Russian telecommunications company.
The former Communist bloc in eastern Europe, including Romania, Bulgaria
and Czech Republic, is also a target of Russian groups.
But they are equally interested in expanding farther afield.
Russian oil majors are currently seeking opportunities in Germany, which is
a major destination for Russia's booming output of natural gas and crude.
LUKoil has its sights on a chain of 460 gas stations in the north of
Germany, the number six Tatneft on another 340 stations in the south and
the biggest German refinery Bayernoil.
Yukos, the second largest producer, is already implanted in Norway and says
it is on the lookout for any acquisition in Germany.
Austria and Italy are also potential targets.
Some analysts say that the deals are not always justifiable economically,
but others counter that these criticisms only take into account short-term
considerations.
Russian firms "want to take advantage of the depressed global economy to
acquire assets at reasonable prices and reinforce their position in the
world," a Western economist in Moscow said.
"The bosses of companies where the carve-up of assets has been completed
have turned their backs on the wild capitalism of the 1990s and are getting
closer to international standards of management," he said, speaking on
condition of anonymity.
"They can present themselves now to foreign investors as solid partners,"
the economist added.
One day in the future "we should not be surprised therefore when a Russian
corporation takes over a Fortune 500 company. It is probably only a matter
of time," Zabotkine predicted.
So far, only Gazprom, the world's largest natural gas producer, and LUKoil
have made it into this select group of the world's 500 largest companies.
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