At the same time the effectiveness of this method from the standpoint of subsequent improvement of corporate governance is being more and more criticized. In particular, the fact is stressed that the threat of a takeover pushes manager towards the short-term projects because they are afraid of the stock prices going down. Other critics believe that the takeovers serve only the interests of the shareholders without taking into account the interests of all “accomplices”. And, finally, there is always a threat that it might destabilize both the buyer company and the company which is taken over (see Грей, Хэнсон, 1994).
The estimates of the scope of this process depend upon the methodological approach chosen. If we use a wider approach many large privatization transactions may be qualified as friendly or hostile takeovers and then the importance of this process for the corporate sector in 1992-1999 is extremely high.
If we apply narrower definitions then in Russia we may only speak about the following: (1) post-privatization period; (2) individual secondary transactions; (3) large companies. Alternative limitations in this case are objective (both for mergers and takeovers): the need for large amounts of money (loans) which are available only to the largest companies (banks) or the possibility to mobilize sizable shareholdings in order to exchange them.
The corporate mergers as such, in the strict sense of the term (i.e. participation of equal firms, friendly transaction, the agreed upon deal between the large companies not accompanied by the buying up of the small stockholders’ shares, exchange of shares or establishment of a new company), have not yet become so far a significant phenomenon in Russia. This process is traditionally stepped up at the stage of the economic growth and tendency towards the growth of stock prices while in Russia it’s more often regarded as the potential anti-crisis mechanism, or in a political context, or as the institutional formalization of technological integration.
Thus, the transition to the single share of the oil company LUKoil is deemed to be the final stage of integration that is the full merger of the company into one financial and economic entity (the subsidiary companies have actually merged with the holding).2
195 Among the more well-known examples of 1998-1999 was unconsummated merger of the oil companies YUKOS and Sibneft, announced merger of the joint-stock company “Izhorskie zavody” (St.Petersburg) and “Uralmash-Zavody” (Yekaterninburg), announced merger of the Neftekamsky automotive plant (Bashkiria) and Kamsky automotive plant (Tataria).
In essence (without technical details dealing with the size of the companies, proportions of the share exchanges etc.) the mergers and friendly takeovers may be regarded as synonyms. The capital market is also not needed for the friendly takeovers (effected upon agreement between the parties); there is no visible connection as well with the problems of corporate governance. This process is the most typical for Russia after privatization. It happened in many of the newly established corporations and was motivated primarily by the technological reasons: reestablishment of the old business ties, struggle for the market share, vertical integration.
The oil company Surgutneftegaz, for example, as opposed to LUKoil, was completing the process of technological integration through a series of takeovers (joint-stock company KINEF and a number of the refined product supply companies). Typically such a process is formalized through establishment of a financial and industrial group a cross ownership system around large corporations (especially in chemistry, construction). We should also point out that this process is highly politicized and the federal and/or regional authorities play an active role in it (especially in Bashkiria, Tatarstan).
Actually only hostile takeovers hypothetically result in the compensation for the faulty corporate governance through the enforced change of managers. This market (the market of the corporate control as such) so far has not yet developed to any considerable degree in Russia (and the transactions which really took place usually are not advertised). Among the major factors still valid in 1999 and limiting wider development of this market the following can be singled out:
- the need to consolidate large shareholdings while in Russia the share capital (notwithstanding the trend towards concentration) still remains rather dispersed and even at the peak of the market activity in 1996-1997 no more than 5-7% of the blue chips were bought and sold at the market;
- the structure of ownership within a corporation should be relatively clear and should remain fixed while in Russia in 1998-1999 the process of ownership rights redistribution has once again intensified (which at the same time provides an incentive for takeovers);
- insufficiency of liquid resources under the conditions of financial crisis.
Nevertheless the first hostile takeovers in Russia date back to mid-1990s (see: Radygin, 1996b). There was a well-known attempt (although it failed) by the group of the Menatep Bank to take over the confectionery factory “Krasny Oktiabr” through the public tender offer in the summer of 1995. There was another well-known case when the holding of Inkombank purchased the controlling interest in the confectionery company “Babayevskoye”. Many largest banks (financial; groups) and portfolio investment funds practiced takeovers of the companies in completely different branches of industry for their subsequent resale to non-residents and strategic investors. In 1997-1998 once again in the food industry there were takeovers of the regional beer brewing companies by the “Baltika” group as well as takeovers in the pharmaceutical and tobacco industries and in consumer goods production.
One of the interesting examples of the takeover attempt was the conflict of 1977 between RAO “Gazprom” and the group ONEXIMbank – international financial corporation “Renaissance”. The latter was intensively buying up the stocks and hunting for the voting proxies in order to participate in the general meeting of Gazprom’s shareholders. The objective of the group was to get 1 out of 11 seats out the board of directors of Gazprom since at that time it was practically the blocking role (the rest were divided equally between the Gazprom and the state). Nevertheless, this attempted takeover failed and the group had to retreat.
According to some estimates the post-crisis financial situation of 1999-2000 may accelerate the tempo of mergers and takeovers in those sectors of the economy which were ready for it even before the crisis. These are, first of all, food and pharmaceutical industries, ferrous and non-ferrous metals, cellular telephone communications, banking sector (Kaмстра, 1998).
The following specific features of this potential process may be singled out:
- significant stepping up of these developments in the branches where the takeovers do not require serious concentration of financial resources;
- in the takeover policy the major emphasis should be put on these companies which are relatively cheap today and may strengthen the buyers’ independence from the environment;
- high degree of these processes rationalization (as opposed to the general pre-crisis policy of taking over any potentially profitable objects);
- there is a possibility of the increasing number of international merges and takeovers due to the low prices and financial problems of the Russian companies under the financial crisis;
- the continuing opposition of the regional authorities in those cases when the “aggressor” is not connected with the local regional elite;
- appearance of the favorable incentives for the whole branches to streamline the structure of their share capital (under the threat of hostile takeovers).
The most general conclusion which can be drawn from this study is that Russia has not become a unique exception from the rules which are valid for the majority of the transition economies. There is no any unique trajectory in this sphere. All more or less typical trends accompanying the emergence of the corporate control and governance model including the problems of the fight for control are in one way or another characteristic for Russia as well. We believe that Russia, all its problems notwithstanding, is among the pioneers and, compared to some other transitional countries, a significant progress has been achieved in Russia in this field.
All the above-mentioned means that in terms of the further objectives in formation and regulation of the national model of the corporate governance a very “simple” idea can be formulated: there are neither “special obstacles” nor “special recipes” for the formation and emergence of such a national model. All the transition economies encounter the majority of these problems. Both the major problems and the mechanisms of their resolution are well known in the international experience. The formation of the national model of the corporate governance presumes that it’s necessary (first of all for the state) “only” to recognize the need for the following requirements (preconditions) to be satisfied:
- understanding of the special role of the state in a transition economy (as a “creative destroyer”);
- understanding of the long duration of this process comparable with the whole transition period;
- need for the political will in order to develop and enforce efficient legislation to “screen” any narrow interests of any group of any type (political, populist, criminal etc.);
- and, finally, the need not for radical interventions but for the daily regulatory operation of a single body capable of pursuing rigid centralized policy.
In many transitional countries the privatization didn’t result in any sizable investments for the enterprises. This means a heavier press on the emerging model of corporate governance, however, in the legislation of many countries the necessary mechanisms are insufficiently developed so far (problem of additional issues, transparency, protection of different categories of shareholders etc.).
At the same time in the majority of these countries at present the “external” mechanisms of the corporate governance do not work (control on the part of the financial market, takeovers, bankruptcies). Such a situation is typical both for the countries with the concentrated ownership and for those with an amorphous (non-transparent) structure of the corporate control. This means that the active control by shareholders (voting) should become the predominant form (as compared to the passive control through the sale of shares). This also creates a special burden for the “external” legislative and “internal” (boards of directors) mechanisms of the corporate control and the problems of enforcement become especially relevant.
It should be noted that the post-crisis increasing uncertainty (instability) in the sphere of property rights leads to at least medium-run conservation of non-stable and intermediary type of corporate governance’ model in Russia. In this context there is no current alternative for development of the legal mechanisms of corporate governance and for enforcement in the medium-run period.
The progress in overcoming of many of these problems to a large degree depends on the volumes, efficiency and intensity of the institutional regulation. Sharp stepping up of the activity for the protection of investors’ rights (including infrastructural measures) is necessary under the current conditions of the financial crisis and the new stage in the redistribution of the ownership rights as a crucial factor in restoring the investment attractiveness of the country. It’s obvious that the real effect can be achieved only in conjunction with the other measures of the macroeconomic and institutional character.
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