The data presented by the ministries and agencies cover less than a quarter of the total of 9.thousand enterprises as of early 2002. Specifically, the analysis has not covered almost the entire military-industrial complex under specialised government agencies as well as enterprises under power ministries (State Customs Committee, Ministry of Internal Affairs, Ministry of National Emergency, Ministry of Justice, Federal Information Agency, Federal Security Service), whose operations are strictly specialised. A good example is the Ministry of Internal Affairs which includes, for instance, specialised instalment and operation enterprises involved in instalment, operation and introduction of technical means of traffic control (traffic lights, road signs, etc.), which are considered for assignment to the executive agencies of constituent territories of the Russian Federation.
4.5. Certain Trends in the Corporate Sector Development Among basic tendencies that are typical of the corporate sector development in 2002 it is noteworthy to single out both the continuing process of share capital concentration, amalgamation of enterprises and reorganisation of already existing business-groups and a whole series of new tendencies related to intracorporate programmes of a number of the largest companies (groups). It is essential that an analysis of reorganisation changes in 2002 allows us to reveal different strategic motives – depending on the groups’ "maturity"11.
The development of corporate governance standards within a company is directly connected with its reorganisation and long-term strategy. Peculiarities of the latter, judging by the experience of 2002, are also defined by potential views of group’s owners on the features of its international expansion in the nearest years.
Concentration, amalgamation and merger of corporations In oil, coal and metal branches in 2002 the intensive process of redistribution of property was to a great extent finalised (due to the fact that the last government share holdings got privatised and spheres of influence between the largest industrial groups got distributed). A further development in the redistribution processes in these sectors is primarily defined by transactions connected with reorganisations of large holdings, optimisation of their assets (withdrawal of non-profile assets), or alliances among groups.
In this way the control in ferrous metallurgy is performed by 7 largest groups, which in its turn does not exclude the possibility of their further consolidation. At the end of leaders of the metallurgical works in Novolipetzk (NLMK) and Magnitogorsk (MMK) announced about a possibility of their companies’ amalgamation. Though at present stage a “mild” amalgamation with the aim of joint investments and saving of their resources is most probable, establishing of a unified holding structure is also possible, which can give When choosing concrete examples to give the analysis objectivity the author made a point of using only undeniable facts or several sources that in their aggregate show opposite tendencies. In addition to the author’s own data there were used data from WEB-sites of the issuers, SKRIN and other Internet resources, periodicals of publishing house “Commersant”, “Finansovaya Rossiya”, “Vedomosti”, “Expert”, “Finansovye Izvestiya”, “Companiya”, “Zhurnal Dlya Aktzionerov”, “Rynok Tzennykh Bumag” and a number of others.
RUSSIAN ECONOMY in trends and outlooks grounds to place the new holding among ten largest world producers in the branch. It is worth noting that also other might-have-been variants of amalgamations of the largest metallurgical companies were announced previously (an alliance between OAO “Severstal” and the MMK versus an alliance between NLMK and “Eurasholding” with sales of government shares in the “Kuzbassugol” company, a non-commercial partnership established by the NLMK and “Eurasholding” with “Russkaya Stal”). As will also be shown below, at present stage the branch is to a greater degree characterised not by amalgamations but by restructuring and assets consolidation programmes within the framework of already existing ones that have the branch under their control.
In the copper industry the market is controlled by 3 companies, in the aluminium industry in 2002 only two holdings were left. In the aluminium branch as a result of the fact that OAO “SUAL” (the second largest in the branch) amalgamated the aluminium assets of “Sevzapprom” (the managing company of aluminium works in Volkhov and Volgograd, Pikalyovsky GZK and a number of others) the SUAL-holding company has actually divided this market with “Rusal” and controls now 25% of production of aluminium and 60% of production of alumina. The owners of OOO “Upravlyayuschaya Compania (managing company) “Sevzapprom” got 18% of the shares of OAO “SUAL”.
An indication that rather stable influence spheres are being formed in the branch can be the insignificant at first glance transaction with the shares of Nadvoitzky aluminium works (NadAZ), which is significant first of all for the development of SUAL. In 2002 65% of NadAS’s shares were bought by the SUAL-holding, and 32% by “Russkiy Aluminiy”. It was rather evident that a joint management of this enterprise by the two rivals in the branch could hardly be promising and was fraught with a lengthy confrontation within the corporation, that is why the situation was decided in a civilised way at the end of 2002, when SUAL bought 32% of the above shares. Though the transaction conditions are unknown, it is easy to suppose that “Russkiy Aluminiy” got a considerable premium on its renunciation of the joint management.
An institutional result of the military-industrial complex reform in the nearest years shall become the appearance of a rather limited number of large holdings controlled by the government. Pursuant to the government programme adopted in May 2002 in the aircraft industry there shall be established 5 integrated structures by 2004, including 2 multi-profile holdings that will produce both military and civil products: in March 2003 the shares of VASO, MAK “Ilyushin” and Ilyushin aircraft complex will be unified and holding OAO “Corporatziya “Ilyushin” with a 51% government share will be established; by the beginning of 2004 “Tupolev” corporation will be established.
In autumn 2002 legal registration of the process of consolidation of telecommunication companies within the framework of “Svyazinvest” holding was finalised. The result of this process was establishment of 7 inter-regional companies (Tzentrtelecom, North-West Telecom, Uralsvyazinform, The Southern Telecommunications Company, SibirTelecom, VolgaTelecom, Dalsvyaz) on the basis of 72 telecommunication operators. The formal consolidation, no doubt, envisages an even more labour-intensive subsequent stage – actual consolidation of inter-regional subsidiary companies, a tougher management control on the part of the holding, and a capitalisation growth programme.
Concurrently in 2002 subsidiaries of “Svyazinvest” company with the help of bounded debts in roubles attracted 2.5 bln roubles. In 2002 inter-regional subsidiaries plan to float bonds for 3.2 bln roubles. (OAO “VolgaTelecom”, “SibirTelecom”, “The Southern Tele INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru communications Company”. A considerable part of the acquired means shall be used to go on with the policy of assets consolidation: by OAO “VolgaTelecom” to buy 50% of shares of mobile operator ZAO “Nizhegorodskaya Sotovaya Svyaz”, and by “SibirTelecom” also to buy two mobile telephone companies.
At the same time a certain stabilisation in the sphere of property interests (in a certain sense - a post-crisis fixation of property interests’ spheres) creates prerequisites for a new phase of hostile absorptions. Both the deficit of “available” takeover objects and gradual exhaustion of available financial resources give ground to suppose that the takeover style in the nearest years will to a considerable extent be “administrative”, using debt schemes, actions at law about insignificance of previous transactions, etc.
On the other side in a number of branches that possess a considerable growth potential and/or relatively scattered assets intensive concentration (takeover) processes and glaring corporate contradictions persist, the latter being typical of unstable institutional structures.
A concentration process of relatively scattered assets in the meat industry started in 2002, which was initiated to a considerable degree by agricultural sub-holdings belonging to large oil and metallurgy groups. On the whole the tendency of interest growth on the part of largest Russian groups to the agricultural sector has been characteristic for the past 3 years, which is connected both with the effective demand outlooks in this branch and the possibilities to legalise capitals.
In contrast to the meat industry, where in spite of the starting consolidation no corporate conflicts have been registered so far, the “timber” war will in all probability persist also in 2003 (including in London arbitration tribunal). Though in 2002 the court decisions retained the rights of “Ilim Pulp Enterprises” on shares of pulp and paper mills in Kotlas and Bratsk, its major rival “Continental Management” (a subsidiary of “Bazovy Element”) is hardly going to refrain from its struggle and its further expansion in the branch. It is evident that in this property conflict of two largest companies in one of the most attractive branches in Russia’s economy the real confrontation will be happening between the largest extractive groups that are diversifying their assets. According to assessments most effective in this kind of conflict turned out to be takeover methods traditional for the past years – made to order bankruptcies, tampering with registers and the “administrative resource”. One should also take into the consideration that according to the assessments as of the end of 2002 all in all 12 independent structures are present in the branch, they form both vertically and horizontally integrated holdings (structures belonging to the Alpha-group, OAO “Severstal”, and others).
Among other known conflict of 2002 one can name the failed attempt by “Alpha-Echo” to take over the metallurgical works in Taganrog that turned for help to the MDM-group, seizure of a block of shares of Krasnoyarsk coal company, paralleled stockholders' meetings of “Dalvostokugol”, suits by minority shareholders of “Rosneft” about transfer price formation in the holding, tampering with registers of a fat-and-oil factory in Nizhny Novgorod and NPZ in Moscow12, a multi-layer conflict around “Severnaya Neft”, a clash between officers of justice and “employees” of “Moskomplektmebel”, and others.
A parallel process of getting rid of non-profile assets and diversification allows us to speak about moving of financial resources between branches that started in the past two years An analogous procedure (seizure of the register pursuant to a court decision and its transfer to another registrar with follow-up “changes” in the list of shareholders), as far as we know, was used to shift the control of the timber factory in Ust-Ilimsk, metal works in Taganrog, etc.
RUSSIAN ECONOMY in trends and outlooks and is being serviced by the absorption market. Meanwhile, two basic features are typical of the recipient branches: lack of strategic (controlling) owners and an acceptable (higher than the average) level of profitability. The acuteness of corporate conflicts persistent in the majority of branches also testifies to the effect that hostile takeovers (including those containing specific Russian features – usage of the “administrative resource”13) keep being the predominant method of share capital concentration. For the nearest years (taking into consideration the plans to privatise state-owned enterprises and turn them into joint-stock companies) one can also forecast corporate conflicts connected with shift of control at these enterprises prior to and in the course of privatisation transactions. Nevertheless, the results of 2002 allow us to speak about certain quantitative changes.
As is well known, single instances of using classical takeover methods were typical of the initial privatisation stage (post-privatisation stage since the middle of the 1990s until the crisis of 1998). If privatisation deals are taken into account, it is this very period that can clearly be characterised as “takeovers through privatisation”. This method was both used as an independent mechanism and within the framework of expansion strategies of the first financial and industrial groups (first of all non-formal ones, originating in banks).
The second stage (the post-crisis boom) was typical of the period from the middle of 1999 until 2002, when specific reasons that caused a wave of amalgamations and takeovers in Russia became particularly apparent. Nevertheless, due to peculiarities of the methods used, some analysts prefer not using the “amalgamation and takeover” notions to describe them, restricting themselves to a more regular word-combination “redistribution of property”. In this period the expansion of industrial groups was combined with a growing process of assets consolidation.
The third stage (reorganisation “slump”) starts in all probability at present. It can be characterised by a certain decrease in the existing groups’ expansion tempo slowdown, finalisation of consolidation processes and a transfer to restructuring of groups and legal reorganisation (first of all legalisation of amorphous holdings and groups)14.