Russian Companies On a Spending Spree in Europe

Analysts are saying that we can expect a flurry of major deal making from Russian companies as the Putin era comes to a “close.” Stefan Wagstyl at the FT writes about the acquisition plans of Gazprom, Oleg Deripaska’s Basic Element, and Alexei Mordashov’s Severstal.

From the FT:

FT REPORT – CORPORATE FINANCE 2007: Trying to cage The BearBy Stefan Wagstyl, Financial TimesPublished: Nov 28, 2007Fuelled by soaring commodity exports, Russian companies are increasingly making foreign acquisitions. Most companies concentrate on the countries of the former Soviet Union. But bigger groups are looking further afield, particularly in the European Union.In terms of numbers, these acquisitions are few in comparison with foreign and domestic Russian acquisitions. However, the foreign acquisitions are generating considerably more controversy than acquisitions in Russia – particularly the efforts of Russian groups to buy companies in the EU.Much of the controversy focuses on state-controlled Russian companies buying assets in strategic sectors, above all in energy, where Russia is the EU’s biggest external supplier. Gazprom, the Russian gas giant, raises particular concerns based on its position as the monopoly owner of Russia’s export pipelines.Even in the UK, which prides itself on running a particularly open economy, there were protests when rumours circulated that Gazprom might bid for Centrica, the country’s largest domestic gas distributor.Gazprom has made other substantial investments in western Europe, notably in Germany, its biggest customer, without generating hostile headlines. But as its investments are increasing so is the overall level of concern in the EU. The European Commission is now working on plans to restrict investment in the energy sector by state-controlled companies from outside the EU. While Russia is not named in the proposals, Russian officials have complained that the project is directed against Russian companies.Companies without significant state ownership generally find fewer political obstacles. Oleg Deripaska, the aluminium billionaire’s Basic Element company, this year bought 30 per cent of Strabag, the Austrian construction group, and 10 per cent of Hochtief, Germany’s biggest builder.Meanwhile, when Alexei Mordashov, controlling shareholder of the Severstal steel group, this month bought 3 per cent of Tui, the German travel and shipping group, he did so with the active encouragement of Michael Frenzel, the Tui chief executive, who is fighting off a challenge to his position from a US shareholder – Guy Weyser-Pratte. However, Mr Mordashov will tread carefully after his bruising defeat last year in his bid to merge Severstal with Arcelor, the EU’s biggest steelmaker. Even though the Arcelor board agreed merger terms with Severstal, it later pulled out of the deal and accepted a €26.9bn bid from Mittal Steel, controlled by the UK-based Lakshmi Mittal.This year it was Mr Mittal’s turn to be disappointed when he was excluded from the bidding process for Elga, a big Russian coal mining company. Two Russian groups tendered offers, with Russia’s Mechel steel winning with its $2.3bn bid.