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Deripaska Bids for Power Machines

Billionaire Oleg Deripaska on Friday applied to the Federal Anti-Monopoly Service to buy 82 percent of Power Machines, the country's largest turbine maker, putting him head-to-head with steel baron Alexei Mordashov for control of the company.

The bid comes after a similar move by Mordashov, who applied to the service for control of the turbine maker last month. Mordashov offered July 27 to buy a 30.4 percent stake in the firm from Vladimir Potanin's Interros, which said the same day it was selling out.

To get a majority in Power Machines, Deripaska or Mordashov would also have to buy out state utility Unified Energy System or German engineering giant Siemens, which both hold blocking stakes of 25 percent plus one share.

While Power Machines would not appear at first sight to be much of a catch -- it posted first-half losses this year of 591 million rubles ($23.2 million) -- the firm should see a lot of new business as UES plans to install 40,000 megawatts of new capacity over the next five years. That is the equivalent of about 100 average turbines, worth around $350 million each.

Power Machines accounts for 90 percent of the country's domestic turbine production, but so far foreign firms have snapped up nearly all the turbine orders during the UES expansion program. Power Machines' shares rose 0.5 percent on the news of the bid Friday, valuing the company at $1.3 billion.

It is the second bid by Deripaska, the country's second-richest man and a close ally of President Vladimir Putin, for control of Power Machines. In mid-2005, the anti-monopoly service approved his bid to buy a controlling stake in the firm, a few months after Siemens had its own bid rejected on competition grounds.

No talks took place then, however, between Basic Element and Interros, and later in 2005 Interros agreed to sell 22.4 percent in the company to UES.

The rejection of Siemens' bid was seen as a turning point for foreign investment in the country, as the Kremlin has sought to establish increasing control over strategic sectors of the economy. Since then, Shell and BP have been pressured into giving up control of major oil and gas projects, and the government last month submitted long-delayed legislation restricting foreign investment in 39 strategic sectors of the economy.

This time the struggle for Power Machines is likely to boil down to a battle of the titans between Deripaska and Mordashov, as UES chief Anatoly Chubais last week dismissed the chances of a foreign firm winning control. At a groundbreaking ceremony for a General Electric turbine at a Moscow region power plant, Chubais said he wanted to see the UES stake in Power Machines sold in a tender to a "Russian, private, strategic investor."

"All three words are vital to me," he said. "I am talking about a Russian, and by no means a foreign firm ... and namely a private strategic investor, not a commercial investor."

Both Mordashov's and Deripaska's firms would seem to fit that description. Chubais said he would "oppose in principle" any foreign company gaining control of the turbine maker.

Before Interros can sell, however, it must get approval from UES and Siemens, both of which have pre-emptive rights to the stake.

"Interros has already come to us with a proposal, as it had to have, and we have received their proposal," Chubais said at the groundbreaking ceremony. "Either we can buy out our co-shareholder [Interros] in place of the current buyer, or we can allow the current buyer to do it in our place."

Chubais did not elaborate on who the would-be buyer was, and UES spokeswoman Margarita Nagoga said Friday that a decision would be made by August 31.

Olga Antonova, a spokeswoman for Mordashov's Severstal, on Friday declined to comment on his Power Machines bid, saying: "We do not comment on that topic at all."

A spokesman for Deripaska's Basic Element was more candid, confirming that Basic Element had "definitely submitted an application" to the Federal Anti-Monopoly Service to acquire an 82 percent stake.

The anti-monopoly service confirmed that it had received Deripaska's application, RIA-Novosti reported.

Siemens declined to comment on whether it would use its option to buy the Interros stake or whether it was interested in selling its own stake Friday.

The bids by Deripaska and Mordashov came through offshore units Stephens Capital Ventures SA and Highstat Ltd. respectively, Bloomberg reported Friday.

Deripaska has been on a spending spree over the last year, paying $1.6 billion for 30 percent of Strabag, Austria's largest construction firm, and increasing his stake in Hochtief, Germany's largest building company, to 9.99 percent in a deal estimated by Vedomosti to have been worth about $520 million. Russian Machines, controlled by Deripaska, has also reached a deal to invest $1.54 billion in Canada's largest auto-parts manufacturer, Magna International.

In March, Deripaska completed a mega-merger comprised of his Russian Aluminum, Viktor Vekselberg's SUAL and Swiss-based Glencore's aluminum assets. The resulting company, United Company RusAl, is the world's largest aluminum producer.

Deripaska is currently in talks to buy midsize oil company Russneft. The firm's owner, Mikhail Gutseriyev, last Monday said that he was selling up after several months of state pressure, but later retracted his statement.

Mordashov last year tried to merge Severstal with European steelmaker Arcelor, but was outbid by Mittal.

(The Moscow Times 06.viii.07)

 
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