Daimler Pays Big for KamAZ Stake

German manufacturer Daimler inked a deal Friday to purchase 10 percent of Russian truck maker KamAZ at a price 3.5 times the stake's current market value.

The deal calls for $250 million to be paid immediately, and another $50 million to be paid in 2012 if the business develops favorably, Troika Dialog CEO Ruben Vardanyan said Friday, after the deal was signed by Daimler, Troika Dialog, KamAZ, and state corporation Russian Technologies.

The sides agreed on an exclusive strategic partnership between Daimler and KamAZ, a 40-year-old truck producer based in Naberezhniye Chelny, Tatarstan.

"This is a landmark event for the auto industry," said Sergei Chemezov, head of Russian Technologies, which holds a 37.8 percent stake in KamAZ.

"Daimler's decision to go into Russia during the crisis shows serious and long-term commitment," he added.

The signing was delayed by 90 minutes as signatories worked out the details of the deal. Chemezov explained the holdup with a Russian proverb, saying, "Measure seven times and cut once," first in Russian and then in German.

Russia's truck market has great potential for growth, as half the country's trucks are at least 10 years old, said Andreas Renschler, a Daimler AG board member responsible for Daimler Trucks.

Although "the industry is currently facing a perfect storm," the world will still need modern trucks after the crisis, he said.

Daimler plans to use KamAZ's production sites and distribution network to increase its presence in Russia and the CIS. One of its first Russian projects will be establishing a localized unit for the light Fuso truck, Renschler said.

The purchase is widely seen as an attempt to keep up Daimler's market share, as competitor Volvo is scheduled in January to launch a truck plant in Kaluga capable of producing 10,000 trucks annually.

Daimler sold 1,300 of the 154,000 trucks over six tons sold in Russia in 2007.

KamAZ builds about three-quarters of Russia's large trucks and about half of other cargo vehicles. It exports every fourth vehicle to about 30 countries worldwide.

Troika Dialog, which controlled 54.4 percent of the company, first announced their intention to sell part of their stake to a strategic partner late last year. As late as July 2008, Daimler remained the exclusive negotiator, eyeing as much as a 42 percent share — then valued at $1.7 billion.

But KamAZ's stock price has bottomed out since then, sending its market capitalization plummeting. On Friday, a 10 percent stake at current market prices stood at around $72.8 million, down from $420 million in the summer.

The $250 million price tag, though almost 3.5 times the current market value for a 10 percent stake in KamAZ, is "optimal" in the current situation, said UBS analyst Ilya Makarov, adding that market prices are volatile and don't adequately reflect KamAZ's market share.

"KamAZ is interested firstly in the dealership network and the support from the government in this deal," Makarov said, adding that a larger stake would be financially difficult as "Daimler is still dealing with debt left over from Chrysler."

DaimlerChrysler paid $650 million to Cerberus Capital Management in 2007 to take over Chrysler Group and its liabilities, but the firm still has about a 20 percent stake in Chrysler, which is facing bankruptcy along with General Motors after the U.S. Senate rejected the proposed $14 billion bailout plan Friday.

Daimler will be acquiring part of a firm that has hit upon hard times amid a worsening global financial situation. KamAZ is laying off about 3,000 non-staff workers, said KamAZ CEO Sergei Kogogin, citing unfavorable market conditions.

It will also send "unneeded" workers to work temporarily at oil refinery construction sites in Nizhnekamsk, a city 36 kilometers away from the truck maker's production unit, the company said Wednesday.

As part of the deal, a Daimler representative will join the KamAZ board of directors. The board currently holds 11 people, and the substitution mechanism has not yet been announced, a KamAZ representative said Friday. Changes to the board will be determined at the board meeting on Dec. 17.

The agreement comes as several foreign automakers are trying to break into Europe's largest car market. Earlier this year, Troika Dialog brokered another deal between Russian Technologies and French auto giant Renault, which bought 25 percent of Russian automaker AvtoVAZ for $1 billion, with a possibility of additional $166 million in 2010 based on performance.

Daimler fell 3 percent on Friday to close at 24.15 euros, while KamAZ climbed 4.9 percent on the MICEX to close at 29.11 rubles.