Russian Machines Buy Canadian Magna
RIA Novosti economic commentator Mikhail Khmelev, 16 May 2007
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
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
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. -0-